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Digitized  by  the  Internet  Archive 

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http://www.archive.org/details/casesonlawofsureOOdewi 


TH!8  BOOK  PUf 
INDIANA  LAW 


CASES  ON  THE  ^Ffy 

LAW  of  SURETYSHIP      C 


SELECTED  AND  ANNOTATED 


By 
CLINTON   DE  WITT,  A.  B.  ,L.  L.  B. 

of  the  Cleveland  Bar 


Author  of  Second  Edition  of  Stearns  on  Suretyship. 

Professor   of    Law   of  Suretyship   and    Mortgages 

Western  Reserve  Law  School 


INDIANAPOLIS 

THE  BOBBS-MERRILL  COMPANY 

PUBLISHERS 


-vv 


T 

5 


Copyright  1920 
By  The  Bobbs-Merrill  Company 


i 


PREFACE 

The  last  decade  has  witnessed  many  changes  in  the  law  of  Surety- 
ship. The  Corporate  Surety  is  rapidly  replacing  the  Personal  Surety. 
Business  men  prefer  the  promise  of  a  Corporate  Surety  of  rec- 
ognized solvency  to  that  of  the  individual  of  doubtful  responsibility. 
Federal,  State  and  Municipal  laws  require  contractors  engaged  in 
the  construction  of  public  buildings  and  improvements  to  furnish 
bonds  to  secure  their  performance.  The  amounts  involved  are  such 
that  no  one  other  than  the  Corporate  Surety  cares  or  is  able  to  un- 
dertake the  risk.  Probably  more  contracts  of  suretyship  have  been 
written  in  the  last  ten  years  than  in  the  century  preceding,  and  of 
these,  approximately  seventy-five  per  cent,  have  been  signed  by  the 
Corporate  Surety.  Chartered  for  the  business  of  taking  risks,  pre- 
paring its  own  contract,  exacting  a  premium  for  its  undertaking, 
the  Corporate  Surety  is  not  "the  favorite  of  the  law"  which  the 
Personal  Surety  is.  Defenses  and  remedies  available  to  the  latter 
are  sometimes  curtailed  or  even  denied  when  sought  by  the  former. 
The  consideration  shown  by  the  courts  to  the  Personal  Surety  in  the 
construction  and  application  of  his  contract  is  seldom  found  when 
the  contract  of  a  Corporate  Surety  is  the  subject  of  litigation.  It 
is  for  the  purpose  of  acquainting  the  student  with  this  departure 
from  the  old  principles  of  the  law  of  Suretyship  that  the  author 
seeks  to  justify  the  publication  of  this  selection  of  cases.  It  is  not 
to  be  understood,  however,  that  the  cases  selected  concern  the  Cor- 
porate Surety  only.  A  very  large  majority  of  the  cases  relate  to  the 
contract  of  the  Private  Surety. 

Very  little  abridgement  of  the  opinions  of  the  court  has  been 
made.  Statements  of  facts,  where  the  opinion  is  sufficiently  ex- 
planatory, have  been  omitted,  and  some  have  been  revised.  Argu- 
ments of  counsel  have  sometimes  been  set  forth  where  they  are  of 
value  in  illuminating  the  processes  of  reasoning  leading  up  to  the  de- 
cision of  the  court.  Editorial  notes  and  annotations  are  few,  the 
author  believing  that  professors  prefer  to  make  their  own  references 
to  their  classes  from  more  recent  current  decisions.  An  acknowl- 
edgment is  due  Professors  Ames,  Stearns  and  Henning,  from  whose 
books  the  author  has  derived  much  assistance. 

Clinton  De  Witt. 


TABLE  OF  CONTENTS 


CHAPTER  I 

SEC.  TIIE  CONTRACT  pAGE 

1.  Surety,  Guarantor  and  Indorser  Distinguished 1 

2.  Capacity  of  the  Parties  to  the  Contract 10 

3.  Consideration     31 

4.  Incompleted  Contracts  of  Suretyship 47 

5.  Contract  of  Suretyship  Obtained  by  Duress 64 

6.  Contract    of    Suretyship    Obtained    by    Fraud,    Misrepresentation    or 

Concealment   73 

7.  Delivery  and  Acceptance 96 

8.  Commencement  and  Duration  of  Liability 11- 

9.  Suretyship  by  Operation  of  Law 125 

10.  The  Doctrine  of  Estoppel  as  Applied  to  Contracts  of  Suretyship....  132 

11.  Construction  of  the  Contract 136 


CHAPTER  II 

THE   STATUTE   OF   FRAUDS 

1.  The  English  Statute 159 

2.  Promise  Made  to  the  Debtor 159 

3.  Promise  of  Indemnity 161 

4.  Credit  Given  to  the  Promisor. 174 

5.  Joint  Liability  with  the  Principal  Debtor 179 

6.  Discharge  of  the  Original  Debtor 184 

7.  Consideration   Beneficial   to   the   Promisor „ 186 

8.  Promise  to  Pay  Out  of  Property  in  Promisor's  Han\fs\ . . '. 199 

9.  Promise  to  Pay  Pre-existing  Liability  of  Promisor 203 

10.    Promise  of  Del  Credere  Agent 206 


CHAPTER  III 

COMMERCIAL   GUARANTIES 

1.  Special   Guaranty    209 

2.  General   Guaranty    211 

3.  Change  of   Parties 214 

4.  Negotiability  and  Transfer  of  Guaranty 226 

5.  Notice  of  Acceptance  of  Guaranty 238 

6.  Continuing  Guaranty 257 

v 


VI  TABLE  OF  CONTENTS 

SEC.  PAGE 

7.  Guaranty  of  Collectibility 269 

8.  Notice  of  Default 280 

9.  Revocation   of   Guaranty 


CHAPTER  IV 

SURETYSHIP  DEFENSES 

1.  Material  Alteration  of  the  Contract 321 

(a)  Simple  Contracts  321 

(b)  Negotiable  Instruments  332 

(c)  Alterations  Beneficial  to  Promisor 364 

2.  Change  of   Parties 368 

(a)  Addition  of  New  Party  as  Maker 368 

(b)  Addition  of  New  Party  as  Surety 379 

(c)  Erasure  of  Name  of  Cosurety 385 

3.  Alteration  by  Change  in  Obligations  of  Principal 393 

(a)  Contracts  of   Employment 393 

(b)  Public  Officers   403 

(c)  Building  Contracts   410 

4.  Extension  of  Time  of  Performance  of  Principal  Agreement 447 

5.  Delay  of  Creditor  in  Enforcing  Contract  Against  Principal 470 

6.  Failure  of  Creditor  to  Apply  Collateral 480 

7.  Failure  of  Creditor  to  Sue  After  Notice  by  Surety 482 

8.  Discharge  of  Principal  Debtor 487 

9.  Release  of  Securities  Held  by  Creditor 506 

10.  Release  of    Cosurety 520 

1 1.  Discharge  by  Payment 526 

12.  Failure  of  Creditor  to  Disclose  Facts  After  Execution  of  Contract..  542 

13.  Statements  by  Creditor  After  Default 554 

14.  Set-Off  and  Counterclaim 560 


CHAPTER  V 

SUBROGATION 

1.  Nature  of  the  Right  of  Subrogation 571 

2.  Parties  Entitled  to  the  Right 581 

(a)  One  in  the  Situation  of  a  Surety 581 

(b)  One  Who  Pays  as  a  Mere  Volunteer 582 

(c)  The  Creditor    587 

3.  When  the  Right  Arises ' 594 

4.  To  What  Securities  and  Remedies  the  Right  Extends 605 

5.  Subrogation   Between  Cosureties 618 

6.  Subrogation   Between   Successive  Sureties 624 

7.  Conventional  Subrogation  636 


TABLE  OF  CONTENTS 


CHAPTER  VI 


THE   RIGHT   OF   CONTRIBUTION 


1.  Nature  of  the  Right  of  Contribution 641 

2.  Parties  Entitled  to  the  Right 647 

(a)  Sureties  Bound  by  Different  Instruments 647 

(b)  One  Who  Becomes  Surety  at  Request  of  Cosurety 653 

3.  When  the  Right  Arises 656 

4.  Equitable  Contribution  Before  Payment 663 

5.  Amount   Recoverable    672 

6.  Release  of  Cosurety 679 

7.  Surety  Seeking  Contribution  Must  Account  for  Indemnity  Given  Him 

by  Principal  680 

8.  Payment  hy  Surety  Without  Compulsion 687 


CHAPTER  VII 

THE  RIGHT  OF  INDEMNITY 

1.  Nature  of  the  Right  of  Indemnity 691 

2.  When  the  Right  Arises 697 

3.  Amount   Recoverable    '. 704 

4.  Non-Liability  of   Principal 711 

5.  Non-Liability  of    Surety 716 

6.  Bankruptcy  of   Principal 718 


CHAPTER  VIII 

EQUITABLE  EXONERATION  OF  THE  SURETY 

Equitable  Exoneration  of  the  Surety 723 


TABLE  OF  CASES 


[References 

A.ldous  v.  Cornwell  344 

Aldrich  v.  Ames  160 

Alforcl  v.  Baxter  522 
American   Bonding  &  Trust   Co. 

v.  Milwaukee  Harvester  Co.  121 

Ames  v.  Maclay  497 

Anchor  Inv.  Co.  v.   Kirkpatrick  231 

Appleton  v.  Bascom  692 
Atlantic    &    Pacific    Tel.    Co.    v. 

Barnes  550 

B 

Backhouse  v.  Hall  224 

Bagott  v.  Mullen  654 

Balfour  v.  Crace  317 
Bank    of    Monroe    v.    Anderson 

Bros.  Min.  &c.  Co.  92 

Bartlett  v.  Illinois  Surety  Co.  415 

Berry  v.  Pullen  452 

Best  Brewing  Co.  v.  Kunigunda  23 

Bickford  v.  Gibbs  35 

Bigelow  v.  Comegys  96 

Birdsall  v.  Heacock  257 

Black  v.  Alberty  221 

Black-Starr  &  Frost  v.  Grabow  250 

Booth  v.  Eighmie  184 

Boutin  v.  Etsell  658 

Bradshaw  v.  Barber  155 

Brandenburg  v.  Flynn's  Admr.  624 
Brick  v.   Freehold   Nat.   Banking 

Co.  480 

Brown  v.  Lattimore  408 

Brubaker  v.  Okeson  555 

Buckmyr  v.  Darnall  171 

Bullock  v.  Campbell  699 

Bushnell  v.  Bushnell  660 

C 

Calvert  v.  London  Dock  Co.  427 

Cambridge  Saw  Bank  v.  Hyde  366 


arc  to  Pages] 

Cass    County    v.    American    F.x- 

change  State  Bank  385 

Catton  v.  Simpson  368 

Chadwick  v.  Eastman  336 

Chandler  Lumber  Co.  v.  Radke      328 
Commercial     Bank     v.     Cheshire 

Provident  Institution  226 

Consolidated     Exploration     & 

Finance  Co.  v.  Musgrave  694 

Copis  v.  Middleton  605 

Coulthart  v.   Clementson  305 

Craig  v.  Parkis  273 

Crears  v.  Hunter  38 

Cummings  v.  Little  514 


D 


Dair  v.  United  States  301 

Davies  v.  Humphries  656 
Davis    v.    Board    of    Comrs.    of 

Stokes   County  715 

Davis  v.  Wells,  Fargo  &  Co.  242 

Dean  v.  Rice  468 

Decker  v.  Pope  691 
Denio   v.    State   Use   of    Warren 

County  407 

Denison  University  v.   Manning  129 

Dent  v.  Wait's  Admr.  626 

Dye  v.  Dye  474 


Eastwood  v.  Kenyon 
Emerine  v.  O'Brien 
Erfurth  v.  Stevenson 
Estate  of  Koch 


159 
537 
421 
642 


Estate   of   Rapp   v.  Phoenix    Ins. 

Co.  309 

Evans  v.  Bell  269 

Everson  v.  Gere  229 


TABLE  OF  CASES 


[References  are  to  Pages] 


Fay  v.  Richardson 

Fay  v.  Smith 

First    Nat.    Bank    v.    Fidelity    & 

Deposit  Co. 
First  Nat.  Bank  of  Sing  Sing  v. 

Chalmers 
Forbes  v.  Jackson 
Fountain  v.  Bigham 


Gardner  v.  Walsh 
Gay  v.  Murphy 
Germania  Fire  Ins.  Co. 
Gibbs  v.  Blanchard 
Gillespie  v.  Torrance 
Goyer  Co.  v.  Jones 
Green  v.  Cresswell 
Griffith  v.  Sitgreaves 

H 


Lam 


96 

James    Black    Masonry 

& 

Con- 

334 

tracting  Co.  v.  National 

Surety 

Co. 

435 

429 

Jones  v.  Bangs 

350 

Jones  v.  Ward 

495 

199 

Jordan  v.  Dobbins 

302 

600 

70 

K 

373 
60 
395 
179 
560 
505 
163 
66 


Hackett   v.    First   Nat.    Bank 

of 

Louisville 

353 

Hampton  v.  Phipps 

590 

Harding  v.  Tifft 

529 

Harley  v.   Stapleton's  Admr. 

714 

Harner  v.  Dipple 

10 

Hartley  v.  Sandford 

167 

Hartwell  v.  Smith 

631 

Hayden  v.  Cabot 

708 

Herbert  v.  Lee 

88 

Hershizer  v.  Florence 

18 

Hitchborn  v.  Fletcher 

687 

Hoffman  v.  Fleming 

132 

Holm  v.  Jamieson 

28 

Holme  v.  Brunskill 

322 

Hoover  v.  Mowrer 

684 

Hotchkiss  v.  Barnes 

261 

Flunt  v.  Postlewait 

450 

Ida     County     Savings     Bank     v. 
Seidensticker  115 


Kellogg  v.  Scott 
Kindt's  Appeal 
Kirschbaum  &  Co.  v 
Knapp  v.  Anderson 

L 


Blair 


399 
472 
148 
500 


564 

137 

641,  691 

238 


Lasher  v.  Williamson 

Lawrence  v.  McCalmont 

Layer  v.  Nelson 

Lee  v.  Dick 

Leggett  v.  McClelland  621 

Lewis  v.  United   States  Fidelity 

&  Guaranty  Co.  579 

Liebke  v.  Thomas  718 

Lionberger  v.  Krieger  397 

London  General  Omnibus  Co.  v. 

Holloway  81 

Lowe  &  Co.  v.  Beckwith  297 

Lowry  v.  Adams  211 

Lumpkin  v.  Ambrose  Mills  607 

Lusk  v.  Throop  174 

M 

McCanna  &  Fraser  Co.  v.  Citi- 
zens' Trust  &  Surety  Co.  45 
McCaughey  v.  Smith  369 
McClatchie  v.  Durham  716 
McMurray  v.  Noyes  271 
Magee  v.  Leggett  597 
Marshall  v.  Hudson  711 
Mason  v.  Pritchard  136 
Mathews  v.  Aikin  571 
Matthews  v.  Hall's  Admr.  708 
Maule  v.  Bucknell  188 
Maure  v.. Harrison  587 


TABLE  OF  CASES 


XI 


[References  are  to  Pages] 


Mayberry  v.  Bainton  &  Bancroft    20 

Mayo  v.  Hutchinson  19 

Mecorney  v.  Stanley  43 

Merchants  Nat.  Bank  v.  Cole  265 

Michael  v.  Albright  677 

Milks  v.  Rich  203 

Miller  v.  Finley  382 

Miller  v.  Stem  466 

Miller  v.  Stout  577 

Morrison  v.  Arons  393 

Myers  v.  United  States  112 


\ 


National 

Exchange  Bank 

of  Al- 

bany  v. 

Lester 

356 

Neff's  Appeal 

518 

Neil  v.  M 

organ 

47 

Newcomb 

v.  Hale 

483 

Newman 

v.  King 

339 

Northern 

State   Bank   of 

Grand 

Forks  i 

r.  Ballamy 

2 

Norton  v 

Reid 

723 

Novak  v. 

Pitlick 

108 

o 

Offley  v.  Johnson  641 

O'Neal  v.  Kelley  410 

Oxford  Bank  v.  Haynes  280 


Page  v.  Krekey 

93 

Pain  v.  Packard 

482 

Paul  v.  Stackhouse 

31 

Pearl  v.  Deacon 

506 

People  v.  Vilas 

403 

People    of    New    York    State    v. 

Bostwick 

103 

Perkins  v.  Elliott 

14 

Petty  v.  Cooke 

532 

Philadelphia    v.    Fidelity    &    De- 

posit Co. 

448 

Phillips  v.  Foxall 

542 

Pidcock  v.  Bishop  73 

Pipkin  v.  Bond  470 

Plankinton  v.  Gorman  508 


R 


Railton  v.  Mathews  76 

Rawson  v.  Taylor  &  Finger  125 

Red  River  Nat.  Bank  v.  Bray  456 

Reed  v.  Norris  704 

Rice  v.  Southgate  697 

Roberts  v.  Hawkins  284 

Robinson  v.  Gould  64 

Rockfield  v.  First  National  Bank  5 


Russell  v.  Clark 


138,  238 


Saint  v.  Wheeler  &  Wilson  Mfg. 

Co.  1 

Samuel  v.  Howarth  447 

Sanders  v.  Etchison  255 

Sanders  v.  YYeelburg  618 

Sawyers  v.  Campbell  347 

Schock  v.  Miller  520 
School  Dist.  No.  1  v.  McCurley      145 

Scott's  Appeal  581 

Shinn  v.  Budd  582 

Shipp  v.  Suggett  376 

Shreve  v.  Hankinson  636 

Simmang  v.  Farnsworth  35 
Sir   Edward   Deering  v.   Earl  of 

Winchelsea  647 

Smith  v.  Estate  of  Steele  466 

Smith  v.  State  679 

Smith  v.  Young  698 

Snodgrass  v.  Shader  364 

Sohier  v.  Loring  489 

South  Berwick  v.  Huntress  49 

Spurgeon  v.  Smitha  526 

Stallworth  v.  Preslar  672 

State  of  Minnesota  v.  Young  99 

Steel  v.  Dixon  680 

Strong  v.  Sheffield  41 

Stuart  v.  Livesay  98 


TABLE  OF  CASES 


[References  arc  to  Pages] 


Taussig  v.  Reid  294 

Taylor  v.  Farmers'  Bank  587 

Taylor  v.  Wetmore  209 

Thayer  v.  Daniels  720 

Thomas  v.  Cook  161 

Thompson  v.  Taylor  706 
Tidioute  Savings  Bank  v.  Libbey  234 


Townsend  v.  Whitney 

Trotter  v.  Strong 

Trustees  of  Schools  v.  Sheick 

Turnbull  v.  Brock 

Turner  v.  Davies 

Turrill  v.  Boynton 

U 
United  States  v.  National  Surety 


613 
487 
56 
459 
653 
460 


Co. 


V 


442 

674 
701 
479 


Van  Winkle  v.  Johnson 
Vermeule  v.  York  Cliffs  Imp.  Co. 
Villars  v.  Palmer 

W 

Wagner  v.  Stocking  565 

Walwyn's  Surviving  Partners  v. 
Lee  214 


Ward  v.  Hackett 

379 

Warden  v.  Ryan 

412 

Waterman  v.  Vose 

332 

Watertown  Fire  Ins. 

Co.  v.  Sim- 

mons 

548 

Watkins  v.  Perkins 

171 

Welch  v.  Walsh 

289 

Weston  v.  Barton 

217 

Whitcher  v.  Hall 

321 

White  v.  Rintoul 

193 

Wilcox  v.  Fairhaven 

Bank 

594 

Wildes  v.  Dudlow 

165 

Wilkins  v.  Hanson 

554 

Williams  v.  Leper 

186 

Williams  v.  Perkins 

36 

Winn  v.  San  ford 

26 

Winterfield  v.  Cream 

City  Brew- 

ing  Co. 

21 

Witthaus  v.  Zimmerman 

502 

Wolf  &  Hendricks  v 

Koppel 

206 

Wolmershausen  v.  Gullick 

663 

Wright  v.  Griffith 

253 

Wulff  v.  Jay 

510 

Y 

Young  v.  American  Bonding  Co.  141 
Young  v.  Shunk  651 


(J  Q  _—  —  — 

CASES  ON  SURETYSHIP 


CHAPTER  I 


THE    CONTRACT 


SECTION  1.    SURETY,  GUARANTOR  AND  INDORSER 
DISTINGUISHED 

SAINT  ET  AL.  v.  WHEELER  &  WILSON  MFG.  CO." 
95  Ala.  363,  10  So.  539  (1891). 

Action  by  the  Wheeler  &  Wilson  Manufacturing  Company  against 
R.  F.  Saint,  as  principal,  and  C.  W.  Wright,  A.  J.  Crosthwaite  and 
J.  R.  Spragins,  sureties,  upiiri^Jjpn^foiithe^pxtlormance  of  a  con- 
tract of  employment  by  defendant  Saint  with  plaintiff.  Verdict  and 
judgment  for  plaintiff.  Defendants  appeal.   Reversed. 

McClellan,  J. :  The  contract  sued  is  not  a  guaranty^Jbut  one  of 
suretyship.  Crosthwaite  and  the  other  defendants,^wno~undertake 
that  Saint  shall  faithfully  perform  his  contract  with  the  company, 
are  sureties  of  Saint,  and  not  guarantors.  The  distinction  between 
the  two  classes  of  undertakings  is  often  shadowy,  and  often  not  ob- 
served by  judges  and  text-writers ;  but  that  there  is  a  substanlixe 
distinction,  involving  not  infrequently  important  consequences,  is,  of 
course,  not  to  be  doubted.  It  seems  taflie  in  this^tbat  when  the 
sponsors  for  another  assume  a  primary  and  direct^iability,  whether 
conditional  or  not,  in  the  sense  of  being  immediate  or  postponed  till 
some  subsequent  occurrence,  to  the  creditor,  they  are  sureties;  but 
when  this  responsibility  is  secondary,  and  collateral  to  that  of  the 
principal,  they  are  guarantors.  Or,  as  otherwise  stated,  if  they  un- 
dertake to  pay  money  or  do  any  other  act  in  the  event  their  principal 
fails  therein,  they  are  sureties ;  but,  if  they  assume  the  performance  . 
only  in  the  event  the  principal  is  unable  to  perform,  they  are  guar- 
antors. Or,  yet  another  and  more  concise  statement,  a  surety  is  one 
who  undertakes  to  pay  if  the  debtor  do  not;  a  guarantor,  if  the 
debtor  can  not.  The  first  is  sponsor  absolutely  and  directly  for  the 
principal's  acts ;  the  latter,  only  for  the  principal's  ability  to  do  the  ^  , 
act.  "The  one  is  the  insurer  of  the  debt ;  the  other,  an  insurer  of  the  • 
solvency  of  the  debtor."  This  is  the  essential  distinction.  There  is 
another,  going  as  well  to  its  form.   The  contract  of  suretyship  is  the 

1— De  WilTT. 


'/&V& 


2  THE    CONTRACT 

joint  and  several  contract  of  the  principal  and  surety.  "The  contract 
of  the  guarantor  is  his  own  separate  undertaking,  in  which  the  prin- 
cipal does  not  join."  Indeed,  it  has  been  held,  pretermitting  all  other 
considerations,  that  no  contract  joined  in  by  the  debtor  and  another 
can  be  one  of  guaranty  on  the  part  of  the  latter  (McMillan  v.  Bank, 
32  Ind.  11),  though  we  apprehend  that  .'a  case  might  be  put,  involv- 
ing only  secondary  liability  on  the  sponsors,  though  the  undertaking 
be  signed  also  by  the  principal.  However  that  may  be,  it  is  certain 
that  in  most  cases  the  joint  execution  of  a  contract  by  the  principal 
and  another  operates  to  exclude  the  idea  of  a  guaranty,  and  that  in 
all  cases  such  fact  is  an  index  pointing  to  suretyship.  See  Brandt 
Sur.,  1,  2;  9  Amer.  &  Eng.  Enc.  Law,  p.  68;  Marberger  v.  Pott,  16 
Pa.  St.  9 ;  Allen  v.  Hubert,  49  Pa.  St.  259 ;  Reigart  v.  White,  52  Pa. 
St.  438 ;  Kramph's  Exr.  v.  Hatz's  Exr.,  Id.  525 ;  Birdsall  v.  Heacock, 
32  Ohio  St.  177;  Hartman  v.  Bank,  103  Pa.  St.  581 ;  Courtis  v.  Den- 
nis, 7  Mete.  (Mass.)  510;  Kearnes  v.  Montgomery,  4  W.  Va.  29; 
AYalker  v.  Forbes,  2-5  Ala.  139. 

Applying  these  principles  to  the  bond  sued  on,  the  conclusion 
must  be  that  it  is  not  a  guaranty,  but  a  contract  of  suretyship,  on  the 
part  of  Crosthwaite,  Wright,  Hall  and  Spragins.  It  is  not  their 
separate  undertaking,  but  the  principal  also  executes  it.  While  they 
employ  the  word  "guaranty.''  they  directly  obligate  themselves,  along 
J  with   Saint,   to  pay   absolutely   and   wholly,   irrespective   of    Saint's 

i  solvency  or  insolvency,  all  damages  which  may  result  to  the  obligee 
from  his  default.  Not  only  so,  hut  they  expressly  stipulate  that  the 
company  need  not  exhaust  its  remedies~against  Saint  before  proceed- 
ing  against  them.  It  is,  in  other  words,  and  in  short,  a  primary  un- 
dertaking on  their  part* — not  secondary  and  collateral — to  pay  to  the 
company  in  the  event  of  Saint's  failure,  and  not  an  undertaking  to 
pay  only  in  the  event  of  Saint's  default  and  inability  to  pay.  [They 
are  sureties  of  Saint,  and  not  his  guarantors;  and  their  rights  de- 

'  pend  upon  the  law  applicable  to  the  former  relation,  and  not  upon 
the  law  controlline:  the  latter.* 


NORTHERN  STATE  BANK  OF  GRAND  FORKS,  A  CORPO- 
RATION, v.  JAMES  BELLAMY,  SR. 

19  A'.  Dak.  509,  125  N.  W.  888,  31  L.  R.  A.  (X.  S.)  149  (1910). 

Ellsworth,  J. :  The  record  on  appeal  in  this  case  consists  of  the 
judgment  roll  alone,  and  from  the  rinding  of  fact  made  by  the  trial 
court  it  appears  that  on  February  17,  1906,  the  Drayton  Milling 
Company,   a   corporation,   made   and   delivered   to  the  plaintiff  its 

*Part  of  the  opinion  is  omitted. 

See  also  Stearns  on  Suretyship,  2nd  ed.,  §  6. 


SURETY,    GUARANTOR    AND    INDORSER  3 

promissory  note  for  $6,000,  which  note  was  indorsed  as  follows : 
"Pay  Northern  State  Bank,  Grand  Forks,  N.  D.,  or  order.  For  value 
received,  I  hereby  guarantee  the  payment  of  the  within  note  and 
hereby  waive  presentment,  demand,  protest  and  notice  of  protest." 
This  writing  upon  the  back  of  the  note  was  signed  by  the  defendant 
and  appellant,  Bellamy,  and  several  others.  The  sum  of  $2,000  and 
interest  on  this  note  to  April  1,  1907,  was  paid  by  the  maker.  On 
October  24,  1906,  and  again  on  December  17,  1906,  plaintiff,  without 
the  knowledge  or  consent  of  appellant,  Bellamy,  for  a  valuable  con- 
sideration, entered  into  an  agreement  with  the  defendant  Drayton  ~' 
Milling  Company,  by  the  terms  of  which  it  was  agreed  that  the  pay- 
ment of  the  note  should  be  extended  for  a  period,  in  each  case,  of 
ninety  days.  At  the  expiration  of  the  extended  time,  Drayton  Mill- 
ing Company,  the  maker  of  the  note,  being  in  default  of  the  balance 
due  upon  it,  suit  was  commenced  against  it  and  the  parties  signing 
the  guaranty  on  the  back  of  the  note.  Appellant  answered  in  this 
suit,  setting  out  facts  substantially  as  hereinbefore  narrated  and 
claimed  as  a  defense  to  the  action  that  by  the  extension  of  time  of 
payment  made  to  Drayton  Milling  Company,  the  principal  debtor, 
he  was  released  from  liability  upon  his  guaranty.  The  trial  court 
held  that  appellant  was  in  law  a  surety,  and  as  such  primarily  liable 
upon  the  note  sued  upon,  and  was  therefore  not  released  from  lia- 
bility by  the  extension  of  time  allowed  Drayton  Milling  Company. 
The  only  question  presented  for  determination  upon  this  appeal  is 
the  correctness  of  this  holding. 

The  trial  court  found  that  appellant  received  no  part  of  the  con- 
sideration for  the  loan  made  by  plaintiff  to  Drayton  Milling  Com- 
pany, nor  was  the  loan  for  his  benefit ;  that  he  was  not  the  principal 
debtor  in  said  loan,  or  in  any  manner  liable  upon  the  note  except  by 
signing  the  agreement  upon  the  back,  the  wording  of  which  is  above 
set  out.  His  liability  was,  therefore,  in  no  manner  distinguishable 
from  that  of  an  absolute  guarantor  of  payment,  and  must  be  meas- 
ured by  settled  rules  applicable  to  that  relation. 

%  #  ^  5jc  >K  *  * 

The  nature  and  character  of  the  contract  of  guaranty  is  an  impor- 
tant factor  in  the  determination  of  this  point.    ^Guararftv*^f__arijLm-'" 
dertaking  by  one  person  that  another  shall  perform  hir*contract  oiC  A^ 
fulfill  his  obligation,  and  that  in  case  he  does  not  do  so  the  guarantor', 
wrll  do  it  forhim.   A  guarantor  of  abtll  or  note  is  the  one  who  en-l) 
gagtis  that  the  note  shall  be  paicl^r  The  "contract  of  guaranty"  is 
broadly  Ulld  "clearly  dislinguisned  from  that  of  suretyship.  £A  con-N 
tract  of  suretyship  is  a  contract  by  which  the  surety  becomes  bound; 
as  the  principal  or  original  debtor  is,  bound.    It  is  a  primary  obliga-H^" 
tion,  and  the  creditor  is  not  required  to'  proceed  first  against  the  i 
principal  before  he  can   recover   from  the   suretyj^The   surety   is  \ 
bound  with  his  principal  as  an  original  promisor,  that  is,  he  is  a 


-r 


THE    CONTRACT 


debtor  from  the  beginning  and  must  see  that  the  debt  is  paid  and  is 
held  ordinarily  to  know  every  default  of  his  principal,  and  can  not 
protect  himself  by  the  mere  indulgence  of  the  creditor,  nor  by  want 
of  notice  of  the  default  of  the  principal,  however  such  indulgence 
or  want  of  notice  may,  in  fact,  injure  him.  Being  bound  with  the 
principal,  his  obligation  to  pay  is  equally  absolute.  On  the  other 
hand,  the  contract  of  a  guarantor  is  his  own  separate  contract ;  it  is 
in  the  nature  of  a  warranty  by  him  that  the  thing  guaranteed  to  be 
done  by  the  principal  shall  be  done,  and  is  not  merely  an  engagement 
jointly  with  the  principal  to  do  the  thing.  A  guarantor,  not  being  a 
joint  contractor  with  his  principal,  is  not  bound  to  do  what,. the  prin- 
cipal has  contracted  to  do,  like  a  surety,  but  only  to  answer  for  the 
Consequences  of  the  default  of  the  principal.  The_gij'arantor  has"  to 
answer  for  the  consequences  of  his  principal's  defaujff  A  sufety  is 
an  insurer  of  the  debt.  A  guarantor  is  an  insurer -tea  the  solvency  of 
the  debtor.  A  surety  may  be  sued  as  promisor^ferut  a  guarant^can 
not."  Ogden,  Negotiable  Instruments,  §  220. 

With  these  considerations  in  mind,  it  is  apparent  that  while,  in  its 
ultimate  results,  the  liability  of  a  guarantor  may  be  as  absolute  as 
that  of  a  surety,  the  nature  of  his  contract  and  the  procedure  neces- 
sary to  hold  him  are  very  different.  Authorities  all  agree  that  a  con- 
tract of  guaranty  is  entirely  separate  from  that  contained  in  the  ne- 
gotiable instrument  to  which  it  is  appended,  and  that  the  remedy  of 
the  holder  of  the  note  against  a  guarantor  mus;Lbej3ursued  as  a  dis- 
tinct cause  of  action.  Ogden,  Negotiable  Instruments,  §  220.  By  ex- 
press provision  of  our  code  persons  liable  severally  for  the  same 
debt  or  demand,  although  upon  different  obligation  or  instruments, 
may,  at  the  option  of  the  plaintiff,  be  included  as  parties  to  the  same 
action.  Section  6819,  Rev.  Codes  1905.  In  the  absence  of  this  pro- 
vision, a  guarantor  must  be  proceeded  against  in  a  separate  action. 
'  The  fact  that  his  contract  is  indorsed  upon  the  negotiable  instrument 
j  by  which  he  is  bound  does  not  in  the  least  alter  the  character  of  his 
JA  obligation.  "The  engagement  or  contract  of  guaranty  may  be  and 
often  is  written  on  the  back  of  the  note  or  bill,  but  it  may  as  well, 
'■  so  far  as  the  guaranty  is  concerned,  be  written  on  a  separate  piece 
of  paper."  2  Parson's  Notes  and  Bills,  119.  /'The  contract  of  a 
guarantor  is  his  own  separate  contract.  It  is  in  me""nature  of  a  war- 
ranty by  him  that  the  thing  guaranteed  to  be  done  by  the  principal 
shall  be  done,  and  not  merely  an  engagement  jointly  with  the  prin- 
cipal to  do  the  thing.  The  surety's  promise  is  to  pay  a  debt  which 
becomes  his  own  debt  when  the  principal  fails  to  pay  iL  But  the 
guarantor's  promise  is  always  to  pay  the  debt  of  another."  Coleman 
v.  Fuller,  105  N.  Car.  328;  Rouse 'v.  Woolen,  140  N.  Car.  557.  A 
liability  such  as  this,  although  it  may  result  in  requiring  a  guarantor 
to  pay  the  note,  is  not  predicated  upon  "the  terms  of  the  instru- 
ment," but  upon  a  contract  entirely  separate  and  distinct. 

[The  terms  "primary  and  secondary,"  when  they  apply  to  the  par- 


SURETY,    GUARANTOR    AND    INDORSER  0 

ties  to  an  obligation,  "refer  to  the,  remedy  provided  by  the  law_  for 
enforcing  the  obligation,  rather  than  to  the  character  and  limits  of 
tf\e]obligation  itself."  Kilton  v.  Prov.  Tool  Co.,  22  R.  I.  605.  There- 
fore, however  closely  analogous  may  be  the  ultimate  liability  upon 
the  instrument  of  surety  and  guarantor,  the  clear  distinction  in  the 
character  of  their  respective  contracts,  and  the  procedure  by  which 
their  obligations  must  be  enforced,  operates  to  place  these  parties  in 
different  classes  of  the  persons  liable  as  defined  by  the  new  law  of 
negotiable  instruments.  The  purpose  in  making  a  classification  not 
provided  by  the  former  law  would  seem  to  be  to  strengthen  the 
credit  of  negotiable  paper  by  protecting  the  holder  against  a  claim 
that  persons  directly  and  absolutely  liable  by  the  terms  of  the  in- 
strument had  in  fact  signed,  not  as  joint  makers,  but  in  some  other 
capacity.  As  the  law  now  stands,  these  questions  of  primary  and 
secondary  liability  are  to  be  resolved  only  upon  the  face  of  the  in- 
strument. All  persons  by  its  terms  absolutely  required  to  pay  the 
same  may  be  held  as  primarily  liable,  all  others,  secondarily.  When 
a  party  on  signing  clearly  indicates  upon  the  instrument  the  capacity 
in  which  he  is  willing  to  be  bound,  the  holder  in  accepting  it  can  not 
misapprehend  its  true  quality,  for  he  then  knows  that  thep>rty  may 
be  held  in  that  capacity  and  np"Other.  |Appe.llant^8i|fned..  as  guarantor, 


and,  as  in  that  capacity  he^was^ecoiKlarfily/Tiable  upon  the  instru- 
ment, he  was  released,  as  uno^ef^ the  "former  law,  by  an  extension  of 
time  to  the  principal  debtor'without  his  assentjAs  affecting  him  the 
principle  governing  the  relation  of  holder  and  guarantor  under  the 
former  law  is  unchanged. 

The  judgment  of  the  district  court  against  the  defendant,  Bel- 
lamy, is  reversed,  and  it  is  directed  to  dismiss  the  action  as  to  him. 
All  concur. 

Spalding,  J. :  I  concur  in  the  result,  but  can  not  assent  to  all  that 
is  said  in  the  opinion. 

See  also  J.  W.  Watkins  Medical  Co.  v.  Lovelady,  186  Ala.  414,  65  So.  52, 
where  the  parties  were  described  in  the  contract  as  sureties  but  were  held  by 
the  court  as  guarantors. 


P 


ROCKFIELD  ET  AL.  v.  THE  FIRST  NATIONAL  BANK' 
77  Ohio  St.  311,  83  N.  E.  392,  14  L.  R.  A.  (N.  S.)  842  (1907). 


Action  was  brought  in  the  common  pleas  of  Clark  by  The  First 
National  Bank  of  Springfield  against  H.  L.  Rockfield,  L.  M.  Goode, 
E.  H.  Ackerson,  John  Snyder,  Frank  Patterson  and  The  Springfield, 
Charleston,  Washington  &  Chillicothe  Railway  Company,  to  recover 
on  a  promissory  note,  a  copy  of  which  follows : 


6  THE    CONTRACT 

"$10,000  Springfield,  Ohio,  December  12,  1904. 

On  demand  after  date  we  jointly  and  severally  promise  to  pay 
The  First  National  Bank  of  Springfield,  Ohio,  or  order,  at  its  bank- 
ing house  ten  thousand  dollars  for  value  received,  with  six  per  cent, 
interest  after  date. 

(Signed)        The  Springfield,  Charleston,  Washington 
&  Chillicothe  Railway  Company. 

H.  L.  Rockfield,  President ; 
E.  H.  Ackerson,  Secretary." 

On  the  back  of  the  note  appeared  these  names :  "John  Snyder, 
Frank  Patterson,  L.  M.  Goode,  E.  H.  Ackerson." 

The  petition  avers  that  there  were  no  credits  and  that  there  was 
due  plaintiff  from  defendants  ten  thousand  dollars  with  interest 
from  date.  It  further  avers  that  the  defendants,  Rockfield,  Goode, 
Ackerson,  Snyder  and  Patterson,  indorsed  the  note  before  it  was  de- 
livered to  plaintiff;  that  due  demand  had  been  made  of  each  defend- 
ant July  5,  1905,  but  no  part  had  been  paid. 

Demurrers  were  interposed  by  defendants,  Rockfield,  Snyder  and 
Ackerson,  which  being  overruled  those  defendants  answered  admit- 
ting that  they  indorsed  the  note  before  delivering  it  to  plaintiff,  but 
averred  that  they  indorsed  it  for  accommodation  only,  receiving  no 
consideration  whatever  for  so  indorsing  the  note.  Also  that  de- 
fendants were  not  notified  of  the  non-payment  of  the  note  by  the 
maker  at  maturity,  and,  therefore,  were  not  indebted  to  the  plaintiff 
in  any  sum.  To  this  answer  plaintiff  demurred.  This  demurrer  was 
sustained,  and  the  answering  defendants  not  desiring  to  plead  fur- 
ther, judgment  was  rendered  against  them  for  the  amount  claimed 
and  costs.  On  error  to  the  circuit  court  this  judgment  was  affirmed. 
Rockfield  and  Snyder,  by  this  proceeding,  ask  a  reversal  of  the 
judgments  below. 

Spear,  J. :  Whether  or  not  the  answer  avers  a  defense  to  the 
cause  of  action  set  up  in  the  petition  is  the  question  here.  The  theory 
of  the  defendants'  pleading  is  that  Rockfield  and  Snyder,  by  writing 
their  names  across  the  back  of  the  note,  became  indorsers  in  the 
commercial  sense,  and  therefore  entitled  to  notice  of  demand  at  ma- 
turity of  the  maker  and  of  non-payment,  and,  failing  that,  no  lia- 
bility attached.  The  theory  of  the  petition  is  that  these  defendants, 
having  signed  the  note  before  delivery,  must  be  held  to  have  signed 
with  the  purpose  of  giving  it  credit  and  of  aiding  negotiability,  and 
therefore  stand  as  makers,  and  although  their  names  appear  on  the 
back  of  the  instrument,  and  they  are  in  law  sureties,  yet  they  are 
not  indorsers  in  the  commercial  sense  and  therefore  not  entitled  to 
notice  of  demand  and  non-payment.  This  view  is  the  one  adopted 
by  the  trial  court  which  incorporated  in  the  judgment  entry  a  find- 
ing that  the  defendants  are  indebted  as  joint  and  several  makers  of 
the  note,  and  this  is  the  view  taken  of  the  question  by  the  circuit 


SURETY,    GUARANTOR    AXD    IXDORSER 


court  in  affirming  the  judgment  of  the  common  pleas.  Which  is  the 
correct  view  is  the  question  we  have.  And  here  it  is  proper  to  ex- 
press our  obligation  to  the  learned  counsel  whose  ample  and  lumi- 
nous briefs  have  greatly  aided  in  our  examination  and  disposition  of 
the  case. 

Xhatthe  conclusion  adopted  by  the  lower  courts  is  in  accord  with 
-ihejaw  as  held  in  this  state  from  early  times,  and  with  all  decisions 
oJLlhis  court  thus  far  made,  is  conceded.  The  latest  deliverance  on 
the  subject  is  the  case  of  Ewan  v.  The  Brooks-Waterfield  Co.,  55 
Ohio  St.  596,  opinion  by  Williams,  C.  J.  It  is  there  held  that  where 
the  name  of  a  third  party,  a  stranger  to  the  note,  appears  in  blank 
upon  the  back  of  the  note  at  the  time  it  takes  effect,  his  undertaki-g 
rests  upon  the  consideration  which  supports  the  note,  and  the  pre- 
sumption is  that  he  intended  to  be  liable  as  a  surety,  and  he  will  be 
held  accordingly  unless  it  is  shown  that  there  was  a  different  agree- 
ment between  the  parties.  This  conclusion  is  reached  after  a  careful 
and  somewhat  extended  review  of  authorities,  many  of  them  de- 
cisions of  this  court,  and  is  supported  by  strong  and  convincing  ar- 
gument. "While  a  contrary  doctrine,  holding  such  party  to  be  an 
indorser.  in  the  commercial  sense,  had  been  held  in  a  number  of 
states,  notably  Alabama,  California,  Connecticut,  Indiana,  Missis- 
sippi, New  York,  Oregon,  Pennsylvania  and  Wisconsin,  the  Ohio 
rule,  as  above  indicated,  had  been  the  settled  common-law  rule  of 
the  states  of  Arkansas,  Colorado,  Delaware,  Maine,  Maryland,  Mas- 
sachusetts, Michigan,  Minnesota,  Missouri,  New  Hampshire,  North 
Carolina,  Rhode  Island,  South  Carolina,  Texas,  Utah  and  Vermont. 

The  statute  referred  to  is  the  act  of  ApriM/\_l_9_Q2,  known  as  the 
Negotiable  Instruments  Act   (95  O.  L.   162) /carries  into  the  Re- 


y, 


3 


Iff 


vised  Statutes  as  §§  3i?l  to  3178g?.  inclusive,  the  particular  sections 
relied  upon  being  3171,  3173h,  3173i,  3173k,  3173q,  3174g  and  3178a. 
By  the  provisions  of  these  sections  a  negotiable  instrument  must  be 
in  writing  and  signed  by  the  maker  or  drawer^  The  person  primarily 
liable  is  the  person  who  by  the  terms  of  the  instrument  is  absolutely 
required  to  pay  the  same,  all  others_being  secondarily  liable.  A 
person  placing  his  signature"  upon  an  instrument  otherwise>rfan  as 
maker,  drawer  or  acceptor,  is  deemed-  to  be  an  indorse/unless  he 
clearly  indicates,  by  appropriate  wcTQrs7rusTntention  to  be  bo^fid  in 
some  other  capacity.  Then  follows,  as  to  liability,  this j^CYhere  a 
person  not  otherwise  a  party  to  an  instrument  rJac^ihereon  hi<, 
signature  in  blank  before  delivery,  he  is  liable  as  irWorser:  l./J-fme 
instrument  is  payable  to  the  order  of  a  third  person,  he  is  liable  to 
the  payee  and  to  all  subsequent  parties.  2.  If  the  instrument  is  pay- 
able to  the  order  of  the  maker  or  drawer,  or  is  payable  to  bearer, 
he  is  liable  to  all  parties  subsequent  to  the  maker  k)f  drawer.  3.  If 
he  signs  for  the  accommodation  of  the  payee  he  is^Wable  to  all  par- 
ties subsequent  to  the  payefc'  Every  indorser  vPf(o  indorses  without 
qualification,  guarantees  to  all  subsequent  holders  the  genuineness 


^yU- 


71. 


j 


Til 


of  the  instrument,  the  title,  the  capacity  of  previous  parties  to  con- 
tract, etc.,  and  engages  that  on  due'presentment  the  instrument  shall 
be  accepted  or  paid  or  both,  as  the  case  may  be,  and  that  ifjt  be  dis- 
honorect~ano^  the  necessary  proceedings  on"""dishpnor  be_  duly  taken, 
he  will  pay  the  amount  mereof  to  the  holder  or  to  any  subsequent 
indorser  who  may  be  compelled  to  pay  it.  Presentment  for  payment 
must  be  made  at  a  reasonable  hour  on  a  business  day  at  a  proper 
place,  to  the  person  primarily  liable  on  the  instrument,  or  if  he  is 
absent  or  inaccessible,  to  'any  person  found  at  the  place  where  the 
presentments  made.  When  such"-  instfuiiTent  has  been  dishonored 
by  nonacceptance  or  nonpayment,  notice  of  dishonor  must  be  given 
to  the  drawer  and  to  each  indorser,  and  any  drawer  or  indorser  to 
whom  such  notice  is  not"  given  is  discharged. 

The  question  at  itfsue  very  largely  turns  upon  what  is  meant  by  the 
terms  of  §  3173i,  the  substance  of  which  we  here  repeat:  "Where  a 
person  not  otherwise  a  party  to  an  instrument  places  thereon  his  sig- 
nature in  blank  before  delivery,  he  is  liable  as  indorser,"  etc.  It 
seems  to  have  been  the  view  of  the  learned  circuit  court  (see  opinion 
by  Dustin,  J.,  8  O.  C,  N.  S.,  290),  that  inasmuch  as  the  liability  de- 
fined by  the  rules  following  the  above  quoted  portion  of  §  3173i,  does 
not  differ  essentially  from  the  liability  attaching  to  such  party  under 
the  decisions  of  this  court,  that  no  change  in  the  law  can  be  presumed 
to  have  been  intended  by  the  general  assembly  in  the  enactment  of 
the  statute.  Also  that  the  subsequent  provisions  of  the  sections  relat- 
ing to  indorsers  and  providing  what  shall  be  done  to  fix  liability,  etc., 
are  not  inconsistent  with  this  conclusion  because  the  later  sections 
apply  only  to  general  indorsers,  and  in  those  sections  every  indorser 
is  described  as  such,  is  called  indorser,  while  in  the  earlier  section 
the  party  described  is  only  to  be  deemed  an  indorser,  and  has  the  lia- 
bility of  an  indorser  only  to  a  limited  extent.  The  contention  further 
is  that  the  terms  of  §  3173h  forbid  the  conclusion  that  such  party 
is  to  be  deemed  an  indorser  in  the  commercial  sense  because  he  must, 
in  order  to  have  that  effect,  place  his  name  on  the  back  otherwise 
than  as  maker,  and  the  rule  is  and  was,  that  the  person  so  placing 
his  name  is  a  maker  unless  he  shows  a  different  agreement  between 
the  parties. 

There  is  much  plausibility  in  these  contentions,  and  they  would 
seem  to  be  sound  were  it  not  for  the  incorporation  of  the  words  "as 
indorser"  in  §  3173i.  Had  these  words  been  left  out  of  the  section 
the  construction  claimed  would  not  seem  an  unnatural  one.  But  we 
are  required,  by  the  inexorable  rule  of  construction,  to  give  to  them 
some  signification,  some  meaning  consistent  with  a  rational  purpose 
in  placing  them  in  the  statute.  The  lawmakers  were  making  law. 
They  can  not  be  presumed  to  have  been  simply  dealing  with  legal 
terms  in  a  loose,  popular  sense.  The  word  "indorser"  has  a  distinct, 
clearly  defined  legal  meaning.  An  indorser  is  one  who  undertakes  to 
|  be  responsible  to  the  holder  of  the  paper  for  the  amount  thereof,  if 


SURETY,    GUARANTOR    AND    INDORSER  y 

the  latter  shall,  at  maturity,  make  legal  demand  of  the  payer,  and  in 
default  of  payment,  give  proper  notice  thereof  to  the  indorser.    The 
language   of   the  section   is  plain  and   free   from   ambiguity.    The 
jwords  express  a  clear  meaning.    The.j>arty  has  placed  his  name  upon 
the  instrument  where  general  indorsers  sign.     He  is  not  a  party  to      y- 
the  note,  but  a  stranger.   Section  3171h  says  he  shall  be  deemed  to  be 
anjndorser  unless  he  clearly  mdTcates  by  appropriate  words  his  in- 
tention to  be  bound  in  some  other  capacity.    Hejias  not  so  indicated. 
He  has  used  no  words  appropriate  or  otherwise.     His  status  on  the 
paper  is,  therefore,  fixed  by  the  emphatic  words  of  the  statute.    Then 
follows  the  fixing  of  liability.    He  is  liable  "as  indorser."    And  how 
is  that  ?    Why,  he  must  pay  when,  and  only  when,  proper  demand 
has  been  made  of  the  maker  at  maturity  and  legal  notice  given  him. 
This  is  clearly  shown  by  what  follows.    Every  indorser  who  indorses 
without  qualification  engages  that  on  due  presentment  and  dishonor,   ' 
and  due  notice  to  him,  he  will  pay.    This  expresses  the  extent  of  his 
liability ;   without  these  requisites  being  complied   with  he   is   dis-   > 
charged.     And,  then,  as  though  to  cover  a  doubtful  situation,  the 
provision  is  (§  3171p)  that  where  the  language  of  an  instrument  is 
ambiguous  because  of  the  signature  being  so  placed  that  it  is  not  ^. 
clear  in  what  capacity  the  person  intended  to  sign,  he  is  deemed  to 
be  an  indorser.     Of  the  rules  prescribed  by  §  3173i,  it  is  enough  to   . 
say  that  they  are  not  inconsistent  with  the  obligation  of  the  general 


indorser.     He,  too,  is  liable  to  those  who  come  after  him  as  in- 
party  liable,  but  in  what  capacity,  in  what  relation,  is  he  liable  ? 


dorsers  or  holder.     The  important  question  is  not  to  whom  is  such 


The  contention  that  the  provision  (§  3173k)  to  the  effect  that 
every  indorser  undertakes  to  pay  if  the  instrument  is  dishonored 
and  he  has  due  notice  applies  only  to  general  indorsers,  we  think 
untenable.  The  language  forbids  it.  It  is :  "Every  indorser  who 
indorses  without  qualification,"  etc.  The  word  "every"  is  a  term 
of  inclusion.  It  embraces  every  party  who,  by  previous  provisions,  0 
is  classed  as  an  indorser  unless  his  indorsement  has  been  qualified 
by  appropriate  words.  Nor  is  the  obligation  as  indorser  imposed  on 
the  stranger  an  unreasonable  one,  for,  if  not  content  to  assume  the 
position  of  indorser,  the  opportunity  to  indicate  upon  the  paper  his 
intention  to  be  bound  in  some  other  capacity  is  given  him. 

The  contention  that  these  later  provisions  relate  only  to  general  ■ 
indorsers  rests  wholly  on  the  assumption  that  in  placing  his  name  on 
the  back  in  blank  the  stranger  himself  fixes  his  own  position  and  that 
he  has  conclusively  declared  himself  a  maker ;  that  is,  that  he  has 
placed  his  name  as  maker.  But  it  seems  a  sufficient  answer  to  this  to 
say  that  he  has  not  and  could  not,  by  a  mere  blank  indorsement,  so 
place  himself,  because  the  statute  fixes  his  position.  That  position 
is  important  only  as  it  relates  to  his, liability,  and  the  statute  has  said 
that  that  liability  is  "as  indorser."  /An  indorser  is  not  a  maker  or  a  L_ 
drawer^not  one  primarily  liable.     This  conclusion  ignores  neither 


10  THE    CONTRACT 

the  words:  "Aj)erson  placing  his  name  upon  an  instrument  other- 
wise thanas  maker^etc-,  nor  the  words  :  "Where  a  person  not  other- 
wise a~party  to  an  instrumenTpTaces?>  etc.  Both  sections  must  be 
construed  together.  Thus  construed  they  simply  describe  a  person 
who  is  not^  in  fact,  such  party  in  any  possible  sense  at  the  time  he 
places  his  signature.  He  remains  a  total  stranger  until  he  has  placed 
his  name  on  the  back,  and  then  the  statutejays  he  is  an  indorser.^ 
******* 

But  another  purpose  seems  to  us  to  be  indicated  by  this  legislation. 
Not  only  were  the  courts  of  the  country  in  conflict  respecting  the 
attitude  and  liability  of  a  third  party,  a  stranger,  who  placed  his  name 
in  blank  on  the  back  of  commercial  paper,  but  the  situation  was  in 
itself  an  anomalous  one,  calculated  to  lead,  as  it  often  did  lead,  to 
confusion  respecting  the  duty  of  the  holder  of  such  paper  with  re- 
gard to  demand  and  notice.  Mistakes  in  this  respect  were  easy  and 
were  frequently  made,  often  resulting  in  litigation,  and,  not  infre- 
quently, loss.  To  clear  this  situation  up,  and  to  establish  a  plain, 
easily  understood  rule,  and  one  of  universal  application,  was  surely 
a  result  of  high  importance  to  all  who  deal  in  commercial  paper, 
and  it  seems  to  us  _  that  the  desire  to_  accomplish  this~purpose  had 
much  to  do  with"  inducing  the  enactment  of  the  Negotiable  Instru- 
ments act  by  our  general  assembly. 

It  follows  from  these  conclusions  that  by  force  of  §§  3171,  3173h, 
3173i,  3173k,  3173q,  3174g  and  3178a,  of  the  Revised  Statutes,^  a  per- 
son  who,  being  a  stranger  to  a  promissory  note,  places  his  name  -on 
the  back  by  blank  indorsement,  is  an  indorser  of  the  paper  and  can 
not  be  held  in  any  other  capacity.  /  As  such  he  is  entitled,  in  order 
to  render  him  liable,  to  notice-trf^demand  upon  those  who  are  prima 
rily  liable,  and  failing  such  demand  and  due  notice  to  him,  he  is  dis 
charged.    ',The  answer,  therefore,  stated  a  defense,  and  the  sustain 
ing  of  the  demurrer  and  rendering  judgment  for  the  Bank  upon  the/ 
note  was  error.    Judgment  reversed  and  cause  remanded. 

Reversed. 

Shauck,  J.  J.,  Price,  Crew,  Sumners  and  Davis,  J.  J.,  concur. 


SECTION  2.    CAPACITY  OF  THE  PARTIES  TO  THE 
CONTRACT 

A.  J.  HARNER  v.  LAWRENCE  DIPPLE 

31  Ohio  St.  72,  27  Am.  Rep.  496  (1876). 

The  original  action  was  brought  by  Dipple  against  Harner  on  an 

y  undertaking  for  stay  of  execution,  executed  by  the  defendant  during 

hi§  minority.     It  appears  that  the  defendant  arrived  at  his  majority 

before  the  period  of  stay  expired,  and  that  after  the  expiration  of 


K  ;        +  j,   .  £  v«      — /  Tp  "^   ^ 

CAPACITY    OF    THE    PARXIElSF^'  11 

the  stay  he  acknowledged  his  liability,  and  promised  the  pmrntiff,  to 
whom  the  undertaking  was  made,  to  pay  the  amount  of  the  judgment 
stayed. ix"Tjpon  this  statement  of  facts  judgment  was  rendered  for 
the  plaintiff  in  the  court  of  common  pleas ;  which  judgment  was 
afterward  affirmed  by  the  district  court. 

To  reverse  these  judgments  leave  is  now  asked  to  file  a  petition 
in  error. 

McIlvaine,  J. :  The  question  made  is,  was  the  undertaking  sued 
on  absolutely  void,  or  only  voidable.  If  void,  it  was  not  subject  to 
ratification;  if  voidable  merely,  it  may  be  enforced  after  ratification. 

Having  considered  this  question  upon  principle,  as  well  as  upon    I 
authority,  Ave  are  constrained  to  hold  that  the  undertaking  was  void- 
able only,  and  that  after  ratification  it  became  a  valid  and  binding 
agreement.  _  .     .  0      ' 

In  disposing  of  this  case,  we  make  no  note  of  those  principles    , 
which  control  cases  where  an  infant,  by  reason  of  immaturity  and 
natural  incapacity,  is,  in  fact,  unable  to  assent  to  the  terms  of  an 
alleged  contract.     When  this  undertaking  was  executed  it  contained 
every  element  of  a  valid  contract,  save  only,  that  the  party  was  under  1 
y-one  years  of  age.  (^ 

Except  for  necessaries,  the  law  grants  to  infants  immunity  from 
cbTfity  on  their  contracts.  This  immunity  is  intended  for  their 
rotection  against  imposition  and  imprudence,  and  is  continued  after 
majority  as  a  mere  personal  privilege.  This  privilege  of  immunity, 
after  majority,  is  not  given  because  of  the  actual  or  supposed  inca- 
pacity of  an  infant  to  enter  into  contracts  intelligently  and  prudently. 
If  actual  incapacity  existed,  the  privilege  of  infancy  would  not  be 
needed  for  the  purpose  of  defense.  And  it  is  contrary  to  our  knowl- 
edge of  human  nature,  that  all  infants  are  incapable  of  intelligently 
and  prudently  entering  into  engagements  and  assuming  burdens.  Ut 
is  a  matter  of  favor  intended  as  a  shield  and  compensation  for  the 
want  of  that  greater  wisdom  a::d  prudence  which  time  and  experi- 
ence usually  teach^> 

But,  whatever  may  have  been  the  natural  capacity  of  the  infant 
whenever  he  arrives  at  majority,  a  time  fixed  by  an  arbitrary  rule 
which,  in  the  nature  of  things,  can  not  affect  the  personal  capabili-  jk.L 
ties  of  its  subject,  the  law  presumes  that  he  has  acquired  all  the  wis- 
dom and  prudence  necessary  for  the  proper  management  of  his  af- 
fairs ;  hence,  the  law  imposes  upon  him  full  responsibility  for  all  his 
acts  and  contracts. 

Jn_this  new  relation,  it  becomes  his  moral  duty,  and  for  its  dis- 
charge he  is  invested  with  legal  capacity,  to  affirm  and  perform  or 
to  disavow,  at  his  election,  all  his  previous  contracts  of  imperfect  ob- 
ligation. Contracts  for  necessaries  are^fperfect  obligation,  and, 
therefore,  he  can  not  disaffirm  them^fUontracts  founded  on  illegal^^ 
considerations  are  of  no  obligation,  and,  therefore,  may  not  be  af- 
firmed. 


12  THE    CONTRACT 

The  appointment  of  an  agent  or  attorney  to  make  contracts  is, 
perhaps,  inconsistent  and  repugnant  to  the  privilege  of  infancy,  for 
the  reason,  among  others  that  might  be  named,  that  it  is  imparting  a 
power  which  the  principal  does  not  possess :  that  of  performing  valid 
acts.  But,  outside  of  these  exceptions,  which  are  based  on  special 
grounds,  wre  see  no  reason  why  the  power  should  be  denied,  to  ratify 
any  contract  which,  as  an  adult,  he  might  originally  make.  The 
power  of  disaffirmance  being  co-extensive,  it  is  all  that  is  needed  for 
his  protection. 

If,  in  the  case  before  us,  the  ratification  had  been  made  by  pay- 
ment, instead  of  a  promise  to  pay,  its  binding  effect  would  not  be 
doubted.    Why,  therefore,  should  not  the  promise  to  pay  be  binding 
-    also?    There  is  no  question  about  consideration.    The  consideration 

M  which  supported  the  original  promise  is   sufficient  to  support  the 

ratifying  promise.  The  only  contention  here  is,  that  the  original! 
promise  was  void  by  reason  of  infancy,  not  for  want  of  considera-j 
tion.  If,  therefore,  actual  performance  by  payment  would  have 
been  binding,  so  should  the  promise  to  perform ;  and  this,  too,  with- 
out regard  to  the  fact  whether  or  not  the  infantile  contract  was  bene- 
ficial or  prejudicial.  The  principles  of  jurisprudence  are  not  vio- 
lated by  the  performance  of  a  contract  prejudicial  to  the  party.  In- 
deed, a  person,  sui  juris,  is  as  strongly  obligated  by  his  contracts 
prejudicial  as  by  those  beneficial  to  himself ;  and  the  same  principle 
1  should  apply  where  a  person,  sui  juris,  ratifies  and  confirms  his  con-' 
tract  of  infancy. 

The  plaintiff  in  error,  however,  relies  chiefly  on  the  authority  o 
-r       decided  cases,  and  claims  the  settled  law  to  be/ that  all  contracts  of 
.an  infant  prejudicial  to  him  are  absolutely  voictTand  that  a  contract 
of  suretyship  is  of  that  class. 

In  Swan's  late  treatise,  among  contracts  of  infants  which  have 
k^  been  decided  to  be  void,  is  mentioned  that  of  suretyship,  but  the 

author,  in  speaking  of  the  state  of  the  authorities,  pithily  and  truth- 
fully remarks,  "What  contracts  of  an  infant  are  void,  and  what  are 
merely  voidable,  nobody  knows." 

Keanes  v.  Bagcott,  2  H.  Black,  511,  decided  in  1795,  appears  to 
be  a  leading  case.  The  contract  of  an  infant  was  held  in  that  case 
to  be  voidable  only,  but  in  the  opinion  of  C.  J.  Eyre  a  rule  was  stated. 
wherein  certain  of  such  contracts  are  said  to  be  void.  The  rule  was 
thus  stated :  "When  the  court  can  pronounce  the  contract  to  be  for 
the  benefit  of  an  infant,  as  for  necessaries,  it  is  good;  when  to  his 
prejudice,  it  is  void  ;  and  where  the  contract  is  of  an  uncertain  nature 
as  to  benefit  or  prejudice,  it  is  voidable  only  at  the  election  of  the  in- 
fant." This  rule,  modified  so  as  to  declare  that  a  contract  necessa- 
rily prejudicial  to  the  infant  is  void,  has  been  adopted  in  many  later 
cases,  both  in  England  and  in  this  country.  But  the  current  of  more 
recent  decisions  repudiates  the  distinction  between  void  and  voidable 
contracts,  on  account  of  their  beneficial  or  prejudicial  nature,  and 


CAPACITY   OF   THE    PARTIES  13 

/holds  them  all  to  be  voidable  merely ;  and  the  more  recent  decisions 
[of  courts  still  adhering  to  the  distinction,  hold  some  contracts  void- 
able only,  which  were  before  held  to  be  void.  Thus,  in  Owen  v. 
Long,  112  Mass,  403,  a  surety  contract  was  held  voidable  only,  for 
the  reason  that  such  contract,  as  matter  of  law,  can  not  be  said  to 
be  necessarily  prejudicial  to  the  surety.  Also  an  account  stated  is 
held  voidable  only.  Williams  v.  Moor,  11M.  &  W.  255.  Also  a 
conveyance  by  lease  and  release.    Touch  v.  Parsons,  3  Barrows,  1794. 

*  *****  * 

In  Massachusetts,  where  the  doctrine  was  approved  that  the  acts 
of  an  infant  are  void,  which  not  only  apparently  but  necessarily  op- 
erate to  his  prejudice  (Oliver  v.  Clop,  13  Mass.  237),  it  was  after- 
ward said  by  Chief  Justice  Parker,  in  Whitney  v.  Dutch,  14  Mass. 
457 :  "Perhaps  it  may  be  assumed  as  a  principle  that  all  simple  con- 
tracts by  infants,  which  are  not  founded  on  an  illegal  consideration, 
are  strictly  not  void,  but  only  voidable,  and  may  be  made  good  by 
ratification.  They  remain  a  legal  substratum  for  a  future  assent,  un- 
til avoided  by  the  infant;  and  if,  instead  of  avoiding,  he  confirm 
them,  when  he  has  legal  capacity  to  make  a  contract,  they  are,  in 
all  respects,  like  contracts  made  by  adults."  And  in  1840  (Reed  v. 
Batchelder,  1  Met.  559),  Chief  Justice  Shaw  said:  "The  question,, 
what  acts  of  an  infant  are  voidable  and  what  void,  is  not  very  defi- 
nitely settled  by  the  authorities ;  but,  in  general,  it  may  be  said  that 
the  tendency  of  modern  decisions  is  to  consider  them  as  voidable,, 
and  thus  leave  the  infant  to  affirm  or  disaffirm  them  when  he  comes 
of  age,  as  his  own  views  of  his  interest  may  lead  him  to 
elect."       *       *       * 

In  the  light  of  principle,  therefore,  as  well  as  by  the  weight  of  the: 
later  authorities,  the  whole  question  should  be  thus  resolved :  The  / 
privilege  of  infancy  is  accorded  for  the  protection  of  the  infant  from/ 
injury,  resulting  from  imposition  by  others,  or  his  own  indiscretion.  \ 
That  object  is  fully  accomplished  by  conferring  on  him  immunity  j 
from  liability  until  such  contracts  are  ratified  by  himself  after  arriv- 
ing at  full  age. 

And,  again,  that  an  adult,  laboring  under  no  disability,,  may  per- 
form his  unexecuted  contract  of  infancy,  whether  they  be  beneficial 
or  prejudicial  to  him,  and  that  he  will  be  bound  by  such  performance, 
we  think,  is  a  proposition  too  plain  to  be  doubted>-'JTf,  therefore, 
with  full  knowledge  of  the  facts,  hd  ratifies  antkaffirms  them,  being  >  /W< 
moved  thereto  by  his  own  sense  of  right  and  duty,  lie  should,  in  law, 
as  in  morals,  be  bound  to  their  pei^p*»rnance. 

Motion  overruled. 

Note:  In  order  to  make  ratification  of  suretyship  contract  when  infant  be- 
I  comes  of  age  binding  he  must  have  knowledge  that  his  infancy  at  the  time  of 
signing  is  available  as  a  defense.  Owen  v.  Long,  112  Mass.  403;  Fetrow  v. 
Wiseman,  40  Ind.  148;  Hi&dy  v.  Marefaritz,  3  Pa.  S»   4g 

Contra:    Anderson  v.  Soward,  40  Ohio  St.  325,  48  Am.  Rep.  687. 


14  THE    CONTRACT 

/PERKINS  AND  OTHERS,  APPELLANTS,  AND  ELLIOTT 
h  AND  WIFE  RESPONDENTS 

23  Ar.  /.  Eq.  526  (1872). 

The  opinion  of  the  court  was  delivered  by  the  chief  justice. 

The  bill  in  this  case  alleges  that  the  female  defendant,  Louisa 
Elliott,  is  seized  and  possessed  of  certain  real  and  personal  estate 
jor  her  separate  use,  by  force  of  the  statute  of  this  state  for  the  bet- 
ter securing  the  property  of  married  women,  and  that  having  such 
property  she,  in  conjunction  with  her  husband,  made  a  joint  and  sev- 
eral promissory  note,  containing  an  express  provision  that  it  should 
be  a  charge^  upon  the  separate  estate  of  the  feme.  The  purpose  of 
this  action  is  to  enforce  this  provision,  and  charge  the  money-  due 
upon  this  note  upon  the  separate  estate'  of  the  wife.  This  the  chan-| 
cellpr  refused  to  do,  holding  that  a  married  woman  invested  with  thd 
property  and  interest  created  by  the  act,  just  referred  to,  could  notj  ^ 
by  her  simple  contract  in  writing,  bind  herself  as  surety  for  another 
so  that  a  court  of  equity  would  enforce  such  obligation  against  berT'lT 
even  though  the  intention  to  bind  her  separate  estate  was  clear,  and 
was  expressed  in  the  instrument  executed  by  her.  The  precise  point 
of  this  decision  is  new  to  the  jurisprudence  of  this  state,  and  is  a 
question  of  considerable  moment.  My  researches  into  the  subject 
.have  been  attended  with  more  than  ordinary  interest,  and  I  have 
examined  the  numerous  decisions  with  attention  and  care,  and  my 
conclusion  is,  contrary  to  my  preconceived  opinion,  that  the  state  of 
the  law  is  such  that  this  court  is  at  liberty  to  deal  with  the  question 
■  at  issue  as  one  which  is  entirely  undecided  in  our  courts,  and  con- 
cerning which  no  peremptory  authority  exists.  My  examination  has 
satisfied  me  that  this  entire  subject,  with  respect  to  the  power  of  the 
!  feme  covert  over  her  separate  estate,  has  been  the  creation  of  the 
(  court  of  equity,  and  that  the  system  has  been,  from  time  to  time, 
circumscribed  or  extended,  not  under  the  coercion  of  any  inflexible 
I  rules  or  established  principles,  but  in  accordance  with  judicial  opin- 
ion founded  on  very  general  considerations  as  to  the  propriety  or 
policy  of  the  particular  circumscription  or  expansion.  No  one  who) 
has  the  least  acquaintance  with  the  topic  can  doubt  that  the  rule  thai] 
a  feme  can  bind  her  separate  estate  by  a  contract  of  suretyship,  and 
this  too  in  the  absence  of  any  expressed  intent  so  to  do,  is,  and  has 
been  for  a  long  time  past,  entirely  settled  in  the  English  courts! 
But  still  the  doctrine,  in  its  established  form,  is  not  sufficiently  an- 
cient to  have  in  this  court  an  imperative  force,  and  the  consequence 
is,  as  I  have  already  remarked,  the  way  is  open  for  us  to  adopt  a 
rule  which  will  embrace,  or  one  which  will  exclude,  the  power  which 
has  been  exercised  in  the  present  instance. 

Looking  back  to  the  beginning  of  this  system,  we  find  that  the 
separate  estate  itself  of  the  feme  covert  is  a  pure  creature  of  equity. 


\ 

CAPACITY    OF    THE    PARTIES  15 

It  bears  no  analogy  to  anything  existing  in  the  common  law.  Ac- 
cording to  the  general  legal  doctrine,  the  effect  of  marriage  was  to 
merge  the  existence  of  the  wife  into  the  legal  life  of  the  husband,  so  ^^ 
that  with  respect  to  property  and  civil  rights,  she,  as  a  separate  per- ' 
son,  had  no  recognition.  In  open  derogation  of  this  cardinal  prin- 
ciple, equity  chose  to  invest  her  with  a  capacity  to  hold  property  in 
her  individual  right.     It  is  certainly  not  to  be  wondered  at  that  an  / 

estate  thus  originating  in  this  clear  violation  of  the  laws  of  property 
as  between  husband.and  wife,  should  have  been  afterward  modified 
to  suit  the  supposed  convenience  or  exigency  of  the  case. 

Nor  did  equity  scruple  to  introduce  another  anomaly  when  the 
occasion  seemed  to  require  it.  It  having  been  settled  that  the  wife 
might  enjoy  a  separate  estate,  the  result  was,  as  the  laws  of  property 
attached  to  it,  that  she  could  alienate  it,  and  this  power  in  its  appli- 
cation to  settlements,  proving  disadvantageous,  the  defect  was  reme- 
died by  another  violation  of  legal  rules,  and  a  restraint  against  alien- 
ation inconsistent  with  the  nature  of  the  estate  granted,  was  sup- 
ported. The  structure  raised  on  a  foundation  thus  arbitrarily  laid. 
could  of  necessity  have  no  other  form  than  that  which  would  pro- 
ceed from  the  will  of  the  builders.  And  such  in  truth  was  the  re- 
sult. 

The  married  woman  being  thus  recognized  as  the  owner  of  the 
estate,  the  question  arose  as  to  the  nature  and  extent  of  her  authority 
over  it.  It  became  obvious  at  once,  that  in  order  to  enjoy  the  privi- 
lege thus  granted  she  must  be  allowed  to  make  contracts  with  re-, 
spect  to  her  separate  interests,  and  it  was  accordingly  soon  intimated! 
in  Grigby  v.  Cox,  1  Ves.,  sen.,  517,  and  in  Peacock  v.  Monk,  2  Ves., 
sen.,  190,  that  to  this  extent  she  would  be  regarded  in  equity  as  a 
.feme  sole.  The  result  was  that  those  contracts  which  a  woman  un- 
;  lder_cpverture  made  touching  her  separate  property,  although  void  at 
flaw,  were  universally  enforced  in  equity,  the  principle  at  first  being 
that  such  contracts,  operating  on  the  property,  were  in  the  nature 
jf  the  execution  of  a  power  of  appointment.  But  it  was  soon  sup- 
Dosed  that  this  principle  was  not  broad  enough  to  satisfy  the  pur- 
poses to  be  subserved,  and  accordingly  in  the  great  case  of  Hulme  v. 
Tenant,  1  Bro.  C.  C.  16,  Lord  Thurlow  decided  that  a  bond  of  a  feme 
covert,  jointly  with  her  husband,  would  bind  her  separate  property. 
His  language  is :  "I  have  no  doubt  about  this  principle,  that  if  a 
court  of  equity  says  a  feme  covert  may  have  a  separate  estate,  the 
court  will  bind  her  to  the  whole  extent  as  to  making  that  estate  li- 
able to  her  own  engagements,  as,  for  instance,  for  the  payment  of 
debts,  etc.  This  case  does  not  appear  to  have  been  entirely  satis- 
factory to  Lord  Eldon,  but  he  never  judicially  departed  from  it,  and 
it  has  been  followed  in  many  subsequent  cases,  and  according  to 
Lord  (Tottenham,  it  contains  the  correct  view  of  the  principle  upon 
which  equity  acts  in  giving  effect  to  the  agreements  of  married 
women.    Owens  v.  Dickenson,  1  Cr.  &  Ph.  54. 


16  THE    CONTRACT 

And  although  the  theory  of  the  English  courts  on  this  subject  has, 
after  an  agitation  of  a  century,  settled  into  form  and  coherence,  the 
process  by  which  this  result  has  been  produced  has  not  escaped  the 
criticism  of  some  of  the  most  distinguished  of  American  lawyers. 
Chancellor  Kent,  in  the  case  of  the  Methodist  Church  v.  Jaques, 
3  Johns.  Ch.  77,  uses  this  language :  "It  is  difficult  to  perceive  upon 
what  reasoning  or  doctrine  the  bond  or  parol  promises  of  a  feme 
covert  could  for  a  moment  be  deemed  valid.  She  is  incapable  of 
contracting  according  to  the  'common  right'  mentioned  by  Lord  Mac- 
clesfield; and  if  investing  her  with  separate  property  gives  her  the 
capacity  of  a  feme  sole,  it  is  only  when  she  is  directly  dealing  with 
that  very  property.  The  cases  do  not  pretend  to  give  her  any  of 
the  rights  of  a  feme  sole  in  any  other  view,  or  for  any  other  purpose." 
A  similar  stricture  is  pronounced  by  Judge  Story  in  his  work  on 
Equity  Jurisprudence.  Nor  have  the  English  principles  on  this  sub- 
ject been  received,  in  their  integrity,  by  many  of  the  courts  in  this 
country,  and  perhaps  it  is  not  too  much  to  say  that  the  law  regulating 
the  dominion  of  femes  covert  over  their  own  property,  as  it  at  pres- 
ent exists,  is  not  identical  in  any  two  of  the  United  States. 

/O  The  proposition  is  this :    Shall  a  court  of  equity  enforce  against 
;   J  the  separate  property  of  a  married  woman  a  contract  of  suretyship 

^niade  by  her,  from  moral  considerations  ?  It  seems  to  me,  that  for 
this  court  to  execute  such  an  agreement  would  be  to  apply  the  prin- 
ciple that  a  feme  covert  is  to  be  regarded  in  equity  as  discovert 
with  respect  to  her  separate  estate,  and  with  respect  to  contracts  re- 
lating to  it,  with  an  unwise  latitude.  The  concession  to  a  feme  of  a 
capacity  to  hold  a  separate  estate,  in  an  absolute  form,  necessarily 
carries  with  it  all  the  powers  which  are  requisite  to  the  enjoyment 
and  disposition  of  such  property.  As  owner,  she  can  sell  it, 
or  encumber  it,  or  transfer  it  even  as  a  gift.  Considering  her  as  the 
separate  proprietor,  these  capacities  are  comprehended  among  the 
qualities  of  the  estate,  with  the  title  to  which  she  is  invested.  So  it 
may  also  be  forcibly  insisted  that  the  general  engagements  will  be 
charged  by  equity  against  her  property,  the  argument  being  that 
when  she  contracts  a  debt  she  makes  use  of  her  separate  property, 
and,  as  it  were,  converts  it  by  anticipation,  pro  tanto,  into  money. 
A  feme  covert,  who  borrows  money,  necessarily  does  so  as  the  owner 
of  a  separate  estate,  for  she  can  bind  herself  in  no  other  capacity ; 
the  inference,  therefore,  from  such  act,  certainly  is  not  forced  or 
far-fetched,  that  her  intention  was  to  charge  her  property.     I  can, 

__.  therefore,  readily  comprehend  how  the  English  doctrine  has  grown 
lip,  that  allthe  debts  incurred  by  a  married  woman  for  her  own  bener 
fit,  or  for~tKeT)enefit  of  her  estate,  should  be  imposed  on  her  indi- 
vidual property,  on  the  ground  of  a  manifest  design  to  create  such 
an  encumbrance,  and  because  it  is  one  of  the  modes  of  enjoying 
property,  to  incur  debts  on  the  credit  of  it  J  But,  when  we  proceed_a 
step  farther,  and  come  to  an  agreement  to  stand  as  the  surety  of  an- 


\ 

CAPACITY    OF    Till'     PARTIES  17 


tK 


other,  I  confess  I  lose  sight  of  the  principle  on  which  the  general 
system  should  rest.  Such  obliganons  have  nothing  to  do  with  the 
separate  estate  of  the  feme,  y  The  right  to  create  them  is  a  personal 
right,  unconnected  with  the  ownership  of  goods  or  lands,  and  not 
embraced  in  the  fullest  exercise  of  the  jus  disponendi.  Such  obli- 
gations are  not,  in  any  sense,  necessary,  or  even  convenient,  to  the 
"enjoyment  of  her  property  by  the  married  womaru  The  true  doc- 
trine seems  to  me  this :  That  to  the  extent  that  the  feme  does  any 
act  which  enables  her  to  use  or  enjoy  her  separate  estate,  the  princi- 
ples of  equity  will  validate  such  act,  but  beyond  this  limit  she  is  not 
discovert,  and  can  not  bind  herself  or  her  possessions. 

Nor  do  I  think  that  the  principle  which  would  remove  from  the  .yV. 
present  case,  and  from  analogous  cases,  the  disability  of  the  married 
state,  would  be  a  wise  or  politic  regulation.  Eew_WQmen  have,  or 
are  likely  to  have,  business  habits  or  training.  From  their  habits  in 
life  they  are  necessarily  exposed  to  imposition.  They  must  rely 
mainly  upon  others  with  respect  to  the  legal  effect  of  their  acts.  To 
give  to  such  an  inexperienced  body  of  persons  the  right  to  indorse 
notes,  to  accept  billsTand.to  become  surety  on  bonds  and  other  instru- 
ments, under  the  urgency  of  their  husbands,  or  from  the  importuni- 
ties of  their  relatives  or  friends,  would  not  be  a  boon,  but  a  calamity. 
In  my  opinion  there  is  nothing  in  the  general  doctrines  appertaining 
to  the  subject,  that  should  compel  this  court  to  concede  the  existence 
of  the  power  in  question,  nor  is  there  any  cpri'sideration  of  public 
policy  which  seems  persuasive  of  such  a  concession.  I  agree,  there- 
fore, with  the  chancellor,  as  to  the  general/principle,  that  a  court  of 
equity  will  not  effectuate  the  contract/of  a  married  woman,  not  [ 
-/founded  on  a  valuable  consideration;  binding  her  as  surety  for 
another. 

*-    But,  although  my  examination  of  this  subject  has  led  me,  with 
respect  to  the  general  principle  involved,  to  the  same  conclusion  as 


mitted  by  this  demurrer,  which  show  that  the  female  defendant  had 
a  "personal  interest  in  raising  the  money  for  which  this  note  was 
given.  The  circumstances  thus  shown  are  these :  That  one  Edwin 
Post,  the  payee  of  the  note  in  question,  held  a  mortgage  against 
both  these  defendants,  husband  and  wife,  on  certain  lands  of  the  hus- 
band ;  that  the  money  secured  by  this  mortgage  was  the  sum  of  $10,- 
000,  and  that  this  note  was  given  to  the  mortgagee  in  part  payment 
of  the  encumbrance,  and  in  consideration  of  its  assignment  to  one 
Pardee.  The  language  of  the  bill  in  regard  to  these  particulars  is  not 
as  full  or  clear  as  it  should  be,  but  by  a  rational  construction  of  it, 
the  facts  which  I  have  stated  sufficiently  appear.  The  case,  then,  is 
this :  A  mortgage  on  the  lands  of  the  husband,  is  held  against  hus- 
band and  wife,  and  they  unite  in  giving  a  note  to  raise  money  to  pay 

2— De  Witt. 


18 


THE    CONTRACT 


off,  in  part,  such  encumbrance.  Now,  I  think  it  is  clear  that  in  such 
a  transaction  a  consideration  moves  to  the  wife,  for  she  has  a  valu- 
able, though  contingent,  interest  in  the  property  of  her  husband, 
which  interest  is  encumbered  by  this  mortgage,  and  the  money  bor- 
rowed was  to  be  applied  so  as,  in  some  degree,,  to  exonerate  such 
interest.  In  testing  the  wife's  right  to  act  as  a  feme  sole,  the  only 
question  is  whether  she  is  to  derive  any  benefit  from  the  transaction, 
for  if  such  benefit  is  to  accrue,  her  right  to  bind  herself  is  unques- 
tionable. \  In  the  absence  of  fraud  or  imposition,  this  court  can  not 
attempt  to  measure  the  adequacy  of  -the  interest  which  has  induced 
her  action.  Whenever  her  property  or  rights  are  involved  she  has  a 
competency  to  contract,  and  consequently  must  decide  for  herself  as 
to  the  value  of  that  which  she  will  acquire  by  an  outlay  of  her  money, 
or  as  an  equivalent  for  her  engagements.  The  rule,  of  necessity, 
must  be  universal,  that  in  all  cases  where  the  act  of  the  feme  "ensues 
directly  to  her  own  benefit,  and  she,  expressly  or  by  implication, 
binds  her  estate,  a  court  of  equity  will  enforce  such  obligation.  In 
the  present  case,  as"  the  act  of  Mrs.  Elliott  was  beneficial  to  herself 
as  well-as  her  husband,  it  is  not  in  her  power  ro  repudiate  lt.T^She 
does  not  stand  here  as  a  mere  surety,  but  as  a  party  having  a  pur- 
pose to  subserve  by  entering  into  the  contract  in  dispute.  It  is  im- 
possible to  conjecture  how  far  her  own  interest  may  have  been  the 
motive  to  her  conduct,  but  it  is  enough  to  know  that  the  effect  of  her 
contract  was  of  possible  benefit  to  her.  As  then  the  act  of  the  mar- 
ried woman  in  giving  the  obligation  sued  on,  was  founded  on  some 
consideration  valuable  to  herself,  I  can  perceive  no  reason  why  the 
manifest  justice  of  this  case  can  not  be  reached  by  the  enforcement 
of  this  contract. 

On  this  latter  ground  I  shall  vote  to  reverse  this  decree,  and  to 
give  to  the  complainant  the  relief  prayed  for. 

For  reversal:  Beasley,  C.  J.  Bedle,  Clement,  Dalrimple,  Depue, 
Lathrop,  Ogden,  Scudder,  Wales,  Woodhull.     10. 

For  affirmance:   None. 

See  also  Bank  of  Commerce  v.  Baldwin,  14  Idaho  75,  93  Pac.  504,  17  L.  R. 
A.  (N.  S.)  676  (1908). 


/ls^A<*A 


HER^HIZER  v.  FLORENCE 


>v 


/ 


39  Ohio  St.  516  (1883). 


Doyle,  J.:  If  the  defendant,  Elizabeth  Florence,  was,  at  the 
date  of  the  execution  of  the  notes,  the  owner  of  the  real  estate  de- 
scribed in  the  petition,  or  any  part  of  it,  as  her  separate  property,  the 
judgment  of  the  district  court  was  wrong.  When  a  married  woman, 
owning  a  separate  estate,  executes  a  promissory  note,  either  for  her- 
self or  as  surety  for  her  husband,  the  presumption  is  that  she  charges 


CAPACITY    OF    THE    PARTIES 


19 


her  separate  property  with  the  payment  thereof.  Such  presumption  ^ 
can  not  he  overcome  by  testimony  by  the  wife,  that  such  was  not  her 
intention.  Unless  there  are  circumstances  surrounding  the  transac- 
tion which  show  that  such  was  not  her  intention,  it  is  not  material 
what  her  secret  purpose  was,  and  the  presumption  aforesaid  will  pre- 
vail. 

Thefinding,  therefore,  by  the  district  court,  that,  she  knowingly 
igned  the~notes  as  surety  for  her  husband,  is  sufficient  to  bind  her 
separate  property  (if  she  had  any),  notwithstanding  the  denial  in 
heT  answer  that  by  the  execution  of  the  notes  she  made  such 
charge,  or  the  averment  that  she  did  not,  by  word  or  deed,  prom- 
ise to  pay  said  notes  out  of  her  separate  estate,  or  pledge  the  same 
for  such  purpose.  Avery  v.  Van  Sickle,  35  Ohio  St.  270 ;  Williams 
v.  Urmston,  Id.  296. 


s 


*A 


Accord :   Wicks  v.  Mitchell,  9  Kans.  80. 


W 


-^-K_^< 


Oi^-^t 


/ALBERT. MAYO  AND  ANOTHER  v.  HENRY  V. 
SON  AND  ANOTHER 

57  Maine  547  (1870). 


IIUTCHIN- 


Assumpsit  on  a  promissory  note  of  the  following  tenor : 
$169  Winterport,  September  19,  1868. 

Sixty  days  from  date,  we  jointly  and  severally  promise  to  p?.y 
James  H.  Clark  or  order,  one  hundred  and  sixty-nine  dollars  with 
interest.  H.  P.  Hutchinson, 

Witness,  D.  M.  Belcher.  C.  E.  Thayer. 

The  note  was  indorsed  in  blank. 

The  case  was  submitted  to  the  presiding  judge,  each  party  reserv- 
ing the  right  to  except  to  any  rulings  in  matters  of  law. 

The  presiding  judge  found  that  the  second  signer  of  the  note  was 
a  married  woman  at  the  time  she  signed  the  note,  and  that  she  was 
only_a  surety  on  the  note ;  and  thereupon  ruled  as  matter  of  law 
thatjjie  action  was  maintainable  under  the  statutes  of  this  state, 
both  against  the  principal  and  surety;  to  which  ruling  the  defend- 
ants alleged  exceptions. 

Appleton,  C.  J. :  The  legislatures  of  the  state  have  been  gradually 
enlarging  the  rights  and  extending  the  liabilities  of  married  women. 
JBy  an  Act  approved  Feb.  23,  1866,  c.  52,  "The  contracts  of  any  mar- 
fried  woman,  made  for  any  lawful  purpose,  shall  be  valid  and  bind- 
ing, and  may  be  enforced  in  the  same  manner  as  if  she  were  sole," 
etc.  The  wisdom  or  expediency  of  this  act  is  a  matter  solely  for  the 
legislature.    Its  language  is  most  general,  and  there  can  be  no  rea- 


h 


20  THE    CONTRACT 

sonable  doubt  as  to  its  meaning.  A  contract  of  suretyship  is  a  law- 
ful contract,  and  for  a  lawful  purpose.  It  is  valid  and  binding  on  a 
married  woman.  The  married  defendant  may  have  been  indiscreet 
in  entering  into  it,  but  that  is  not  the  fault  of  the  plaintiff.  Almost 
all  who  sign  as  surety  have  occasion  to  remember  the  proverb  of 
Solomon :  "He  that  is  surety  for  a  stranger  shall  smart  for  it,  and  he 
that  hateth  suretyship  is  sure."  But  they  are  nevertheless  held 
liable  upon  their  contracts,  otherwise  there  would  be  no  smarting, 
and  the  proverb  would  fail. 

Exceptions  overruled. 

Judgment  for  the  plaintiff. 

Cutting,  Walton,  Dickerson  and  Danforth,  J.  J.,  concurred. 

Accord:  Major  v.  Holmes,  124  Mass.  108;  Stone  v.  Billings,  167  111.  170,  47 
N.  E.  372. 

Laws  of  Pennsylvania  (1893),  p.  344. 

"Hereafter  a  married  woman  may,  in  the  same  manner  and  to  tne  samej 
extent  as  an  unmarried  person,  make  any  contract  in  writing  or  otherwise,) 
which  is  necessary,  appropriate,  convenient  or  advantageous  to  the  exercise 
or  enjoyment  of  the  rights  and  powers  granted  by  the  foregoing  section/ 
but  she  may  not  become  accommodation  indorser,  maker,  guarantor  of 
surety  for  another,  and  she  may  not  execute  or  acknowledge  a  deed,  or  oiht 
written  instrument  conveying  or  mortgaging  her  real  property,  unless  h^r 
husband  join  in  such  mortgage  or  conveyance." 

Code  of  Alabama  (1907). 

Par.  4492.  "The  wife  has  full  legal  capacity  to  contract  as  if  she  were  sole, 
except  as  otherwise  provided  by  law." 

Par.  4497.  "The  husband  and  wife  may  contract  with  each  other,  but  all 
contracts  into  which  they  enter  are  subject  to  the  rules  of  law  as  to  contracts 
by  and  between  persons  standing  in  confidential  relations  ;  but  the  wife  shall 
not,  directly  or  indirectly,  become  the  surety  for  the  husband." 

Burns'  Rev.  Stat,  of  Indiana  (1914). 

Par.  7855.  "A  married  woman  shall  not  enter  into  any  contract  of  surety- 
ship, whether  as  indorser,  guarantor,  or  in  any  other  manner,  and  such  con- 
tract, as  to  her,  shall  be  void." 

Note :  Although  statutes  or  court  rules  forbid  attorneys  acting  as  sureties 
on  judicial  bonds,  nevertheless  an  attorney  so  signing  will  be  held  liable  if  no 
objection  is  taken  to  his  signing  as  surety.  Tessier  v.  Crowley,  17  Nebr.  207, 
22  N.  W.  734 ;  Wallace  v.  Scoles,  6  Ohio  429. 

Contra :    Cothren  v.  Connaughton,  24  Wis.  134. 


L/C' 
MAYBERRY,  POLLARD  &  CO.  v.   BAINTON  &  BANCROFTS 

2  Har.  (Del.)   24  (1835). 

By  the  court.  Each  partner  has  the  power  to  charge  the  firm  in 
all  transactions  within  the  scope  and  in  the  course  of  their  business. 
This  results  from  their  partnership  relation  and  the  necessities  of 
trade ;  for  it  is  but  reasonable  that  the  confidence  reposed  in  each 


JW 


CAPACITY 


OF    THE    PARTIES 


21 


other  as  partners  should  be  followed  by  mutual  responsibilities  for 
e~a"ctrother  in  all  matters  relating  to  their  trade  or  business,  and  in 
which  the  public,  when  trading  with  them,  rest  on  the  common  se- 
curity of  the  firm.  Thus  one  partner  may  bind  the  firm  by.-dra-wing, 
accepting  or_inilor  sing"  bills  or  notes  in  the  course  of  their  business; 
for  these  are  transactions  common  to  almost  every  business  or  trade, 
and  necessary  to  carry  it  on.  Butthe  guarantying  the  debts  of  others 
is  not  a  necessary  or  common  partnership  transaction ;  it  is  alto- 
gether out  of  the  course  of  the  defendant's  business  in  this  case,  and 
must  have  been  known  to  be  so  by  the  plaintiffs  when  they  accepted 
from  Bainton  a  guarantee  on  behalf  of  the  firm.  In  a  transaction 
out  of  the  scope  of  their  business,  and  known  to  be  so  by  the  plain- 
tiffs, is  it  not  more  reasonable  that  the  other  members  of  a  firm 
should  be  bound  by  the  act  of  one  partner  beyond  his  authority, 
without  their  knowledge  or  consent,  or  that  the  person  guaranteed 
should  be  bound  to  see  that  the  guarantee  was  known  and  assented 
to  by  all  the  partners  who  are  to  be  bound  by  it.  We  apprehend  the 
law  to  be  now  settled  that  one  partner  can  not  charge  the  firm  by 
his  guarantee  of  the  debt  of  a  third  person  without  the  assent  of  the 
otrTersTBut"  this  assent  may  be  shown  as  welfby  subsequent  ratifica- 
tion lis  by  previous  command,  or  may  be  inferred  from  the  conduct 
of  the  party,  previous  transactions  of  the  same  nature,  or  other  cir- 
cumstances tending  to  show  a  knowledge  of,  and  acquiescence  in, 
the  transaction. 

Accord :  Duncan  v.  Lowndes,  3  Camp.  478 ;  Osborn  v.  Stone,  30  Minn.  25, 
13  N.  W.  922 ;  Avery  v.  Rowell,  59  Wis.  82,  17  N.  W.  875 ;  Seufort  v.  Gille, 
230  Mo.  453,  131  S.  W.  102,  31  L.  R.  A.  (N.  S.)  471. 

Note :  An  insane  person  can  not  bind  himself  by  a  suretyship  contract  not- 
withstanding the  creditor  had  no  knowledge  of  his  unsound  condition  of 
mind.   Van  Patton  &  Marks  v.  Beals  &  Hammer,  46  Iowa  62. 


WINTERFIELD,  APPELLANT,  v.  CREAM  CITY  BREWING 
COMPANY,  RESPONDENT 

96  Wis.  239,  71  N.  W.  101  (1897). 

Action  was  commenced  by  plaintiff  against  one  Joseph  Scheer,  as 
principal,  and  the  Cream  City  Brewing  Company,  as  surety,  for  un- 
paid rent  upon  what  is  known  as  the  Hotel  Eagle,  in  the  city  of 
Mihyaukee.  The  cause  was  tried  by  a  referee.  The  referee  found 
that  plaintiff  had  leased  the  hotel  in  question  to  Scheer  for  the  term 
of  three  years  at  an  agreed  rental  of  $120  per  month,  payable 
monthly  in  advance ;  that  the  defendant  company  gave  a  written 
guaranty  for  the  payment  of  such  rent ;  that  the  purpose  of  the 
guaranty  was  to  provide  a  place  for  the  sale  of  defendant's  beer; 


-7- 


22  •'THE    CONTRACT 

that  at  expiration  oiAhe  lease  there  was   due  and  unpaid  seven 
months'  rent,  amounting  to  $840. 

Newman,  J. :  It  is  urged  that  to  make  such  a  contract  of  guar- 
anty was  not  within  the  power  of  the  corporation — that  the  con- 
tract was  ultra  vires.  The  rule,  no  doubt,  is  that  a  corporation  can 
not  bind  itself  to  purposes  which  arc  foreign  to  those  for  which  it 
was  created.  While  this  is  true,  the  general  rule,  no  doubt,  is  that, 
except  as  restrained  by  law,  corporations  have  the  implied  power  to 
make  all  such  contracts  as  will  further  the  objects  of  their  creation^ 
and  their  dealings  in  this  regard  may  be  like  those  of  an  individual 
seeking  to  accomplish  the  same  ends.  4  Am.  &  Eng.  Ency.  of  Law 
245.  They  are  not  limited  in  law  to  the  use  of  such  means  as  are 
usual  or  necessary  to  the  objects  contemplated  by  their  organiza- 
tion, but,  where  not  restricted  by  law,  may  choose  such  means  as  are 
convenient  and  adapted  to  the  end,  though  they  be  neither  the  usual 
means,  nor  absolutely  necessary.  Madison,  W.  &  M.  Plank  Road 
Co.  v.  Watertown  &  P.  Plank  Road  Co.,  5  Wis.  173 ;  Clark  v.  Far- 
rington,  11  Wis.  306-322;  North  Hudson  Mut.  B.  &  L.  Assn.  v. 
First  Nat.  Bank,  79  Wis.  31.  If  the  contract  is  within  the  general 
scope  of  the  powers  and  purposes  of  the  corporation,  it  will  not  be 
void,  even  if,  in  some  particulars,  it  is  in  excess  of  those  powers, 
unless,  by  reason  of  such  excess,  it  is  against  public  policy.  German- 
town  F.  M.  Ins.  Co.  v.  Dhein,  43  Wis.  420.  The  purpose  of  the  de- 
fendant's organization  was  to  manufacture  and  sell  beer.  Doubtless 
it  was  competent  to  make  any  contract,  which  was  convenient  and  j 
adapted  to  further  that  purpose  which  was  not  against  public  policy./' 
No  doubt  it  was  within  its  competency  to  rent  a  place  for  the  sale  or 
its  beer  by  its  agents  or  servants.  To  rent  a  place  where  one  of  its 
customers  should  retail  its  beer  would  seem,  in  a  similar  manner,  to 
further  the  purpose  of  its  incorporation.  At  least,  it  is  not  clearly 
foreign  to  that  purpose.  The  defendant  owned  the  bar*  fixtures  and 
furniture  which  was  used  by  Scheer  in  the  business.  At  was  the  de- 
fendant's beer  which  was  sold  there.  The  whole  ypurpose  was  a 
scheme  to  make  a  market  for  the  def eikfanVs  beer/  The  defendant 
patronized  and  promoted  other  similar  establishments,  in  a  similar 
way,  in  aid  of  the  same  general  purpose.  The  scheme  was  germane 
to  the  purpose  of  the  corporation,  and  not  foreign  to  it.  It  was  not 
ultra  vires. 

By  the  court.  The  judgment  of  the  superior  court  of  Milwaukee 
county  is  reversed,  and  the  cause  is  remanded  with  direction  to  con- 
firm the  report  of  the  referee  and  to  give  judgment  for  the  plaintiff 
according  to  its  terms. 

Accord :  Timm  v.  Grand  Rapids  Brewing  Co.,  160  Mich.  371,  125  N.  W. 
357;  Horst  v.  Lewis,  71  Nebr.  365,  98  N.  W.  1046,  103  N.  W.  460;  Hess  v. 
Sloane,  66  N.  Y.  App.  Div.  522,  73  N.  Y.  S.  313;  Central  Lumber  Co.  v.  Kel- 
ter,  201  111.  503,  66  N.  E.  543. 


CAPACITY    OF    THE    PARTIES  23 

THE  BEST  BREWING  COMPANY  v.  KUNIGUNDA 
KLASSEN 


185  III.  37,  57  N.  E.  20,  50  L.  R.  A.  765,  76  Am.  St.  26  (1900). 
Mr.  Justice  Wilkin  delivered  the  opinion  of  the  court. 


This  is  an  action  of  debt  upon  an  appeaLhond.  In  a  forcible  entry  • 
and  detainer  proceedings  before  a  policernagistrate,  in  the  city  of 
Chicago,  appellee,  as  plaintiff,  recovered  a  judgment  against  Ruel  G. 
Rounds  for  restitution  of  certain  property.  Rounds  appealed  to  the 
county  court  of  Cook  county,  tiling  an  appeal  bond  as  required  by 
the  statute.  This  boncTwas  f6rJjx2i)QIt  conditioned  as  provided  by 
statute  m  such  cases,  and  was  signed  by  Rounds  and  appellant  as  his 
surety,  the  latter's  execution  of  it  being  as  follows : 

"The  Best  Brewing  Company  of  Chicago,       (Seal.) 

By  Charles  Hasterlik,  Its  President.  (Seal.)"    /  '. 

In  the  county  court  judgment  was  again  rendered  for  the  plaintiff. 
Upon  the  failure  of  Rounds  or  the  brewing  company  to  comply  with 
the  terms  of  that  judgment  this  proceeding  was  commenced  in  the 
circuit  court  of  Cook  county  to  recover  on  the  appeal  bond.  In  de- 
fense to  the  action,  the  brewing  company,  by  its  pleadings,  denied 
ftj-pt  flip  bond,  was  jtgdeed  ;  alleged  that  the  making  of  the  same^as  ' 
to  it,  was  unauthorized,  and  that  such  act  was  not  within  the  power 
oFthe  corporation.  Issues  were  joined  and  a  trial  had  by  jury.  At 
the  close  of  plaintiff's  evidence,  and  again  at  the  close  of  all  the  evi- 
dence, a  motion  was  made  to  instruct  the  jury  to  find  for  the  brew- 
ing company,  but  these  motions  were  overruled.  The  court  then 
took  the  case  from  the  jury  by  instructing  it  to  render  a.  vexdict-ior 
the  plaintiff,  Klassen,  for  $1,321.50.  This  being  done,  judgment  for 
that  sum  was  duly  entered,  and  appellant  appealed  to  the  appellate 
court  for  the  first  district,  where  the  judgment  below  was  affirmed, 
and  it  now  brings  the  case  here  upon  further  appeal. 

The  chief  error  insisted  upon  by  appellant  is,  that  the  circuit  court 
held  the  bond  sued  on  to  be  its  act  and  deed,  the  contention  being 
that  the  powers  of  the  company,  as  a  corporation,  are  limited  by  its 
charter  to  those  which  are  express  or  implied  ;  that  its  express  powers 
are  to  "manufacture  and  sell  beer,  ale  and  porter  and  carry  on  a  gen- 
eral brewing  business  in  all  its  branches ;"  that  the  implied  powers 
it_pja_ssesses  are  only  those  which  may  be  implied  as  necessary  to 
carry_,into  effect  one  or  more  of  those  expressed,  and  that  the  sign- 
ing of  this  appeal  bond  comes  under  neither  of  these  heads,  but  was 
an  act  ultra  vires,  and  therefore  not  binding  upon  the  corporation. 
Appellee  insists,  first,  that  the  act  was  within  the  corporate  power 
of  appellant;  or,  second,  although  in  excess  of  its  corporate  power, 
yet,  having  made  the  bond  and  enjoyed  certain  benefits  arising  there- 
from, itjs_now  estopped  to  make  the  defense  of  ultra  vires. 


\ 


24  TIIK    CONTRACT 

The  general  rule  is  that  a  corporation  can  do  only  those  acts 
which  are  within  the  scope  of  its  charter,  and  if  the  signing  of  the 
bond  in  question  as  surety  was  an  act  not  originally  within  the  ex- 
press or  necessarily  implied  powers  of  the  corporation  it  is  void,  and 
no  subsequent  act  could  make  it  valid  by  way  of  estoppel.  It  was  so 
held  in  National  Home  Building  Assn.  v.  Home  Savings  Bank,  181 
111.  35,  where  the  decisions  of  this  court  are  reviewed,  and  we  there 
said  (p.  44)  :  "If  there  is  no  power  to  make  the  contract  there  can 
be  no  power  to  ratify  it,  and  it  would  seem  clear  that  the  opposite 
party  could  not  take  away  the  incapacity  and  give  the  contract  vital- 
ity by  doing  something  under  it.  It  would  be  contradictory  to  say 
that  a  contract  is  void  for  an-  absolute  want  of  power  to  make  it, 
and  yet  it  may  become  legal  and  valid  as  a  contract  by  way  of  estop- 
pel through  some  other  act  of  the  party  under  such  incapacity,  or 
some  act  of  the  other  party  chargeable  by  law  with  notice  of  the 
want  of  power."  In  that  case  it  is  also  said :  "The  cases  in  this  court 
where  the  corporation  has  been  held  to  be  estopped  have  been  where 
the  act  complained  of  was  within  the  general  scope  of  the  corpo- 
rate powers.".  In  the  case  of  Heims  Brewing  Co.  v.  Flannery,  137 
111.  309,  relied  upon  by  appellee,  the  defense  of  ultra  vires  was  in- 
voked, and  it  was  held  the  corporation  was  estopped  to  make  that 
defense,  inasmuch  as  it  had  enjoyed  the  benefit  of  the  act;  but  there 
the  act  in  question  (which  was  the  leasing  of  a  building  in  which 
to  conduct  a  saloon)  was  within  the  express  power  of  the  corpora- 
tion. 

We  think  the  primary  question  here  is  not  whether  appellant  has 
reaped  a  benefit  from  the  act  of  becoming  surety  for  Rounds  upon 
the  bond,  but  whether  the  act  of  signing  it  was  within  the  scope  of 
its  corporate  authority./  The  purpose  of  the  corporation,  as  ex- 
pressed in  its  charter,  is  to  manufacture  and  sell  ale,  beer  and  porter 
and  carry  on  a  general  brewing  business.  It  would  seem  no  acts 
could  be  more  unlike  than  the  doing  of  those  authorized  by  the  char- 
ter of  the  company  and  the  signing  of  appeal  bonds  as  surety.  The 
/instrument  was  executed  in  a  suit  not  by  or  against  the  corj^oratipn, 
out  by  a  third  person  against  another  to  recover  possession  of  a 
house.  Prima  facie  the  signing  by  the  company  of  an  appeal  bond 
lrTsuch  aTsuit  was  an  act  beyond  the  purpose  for  which  it  was  or- 
ganized, and  consequently  illegaij  If  it  had  been  shown  that  it  was 
executed  clearly  for  the  purpose  of  promoting  or  protecting  its  own 
business  of  brewing  or  selling  beer,  etc. — that  is  to  say,  if  the  act 
had  been  reasonably  necessary  to  accomplish  the  end  for  which  the 
corporation  was  formed — it  would  have  been  within  the  scope  of 
the  corporate  power.  But  it  can  not  be  held  that  every  act  in  fur- 
therance of  the  interests  of  a  corporation  is  intra  vires.  Many  acts 
can  be  suggested  which,  though  beneficial  to  the  business  of  a  cor- 
poration, are  too  remote  from  its  general  purposes  to  be  deemed 
reasonably  within  its  implied  powers.   What  is  and  what  is  not  too 


Jj-C* 


i  7 

CAPACITY   OF    THE    PARTIES  25 


c-z>. 


remote  must  be  determined  according  to  the  facts  of  each  case.  The 
rule  has  been  stated  to  be :  In  exercising  powers  conferred  by  its 
charter,  a  corporation  "may  adopt  any  proper  and  convenient  means 
tending  directly  to  their  accomplishment,  and  not  amounting  to  the 
transaction  of  a  separate,  unauthorized  business."  Clark  v.  Far- 
rington,  11  Wis.  340. 

In  the  case  of  Lucas  v.  White  Line  Transfer  Co.,  70  Iowa  541, 
where  a  corporation  chartered  for  the  purpose  of  doing  a  "general  l 
freight  and  transfer  business  and  such  other  business  as  may  not 
be  inconsistent  therewith"  was  sued  upon  a  bond  executed  by  it  as 
surety  with  another  corporation,  the  Supreme  Court  of  that  state 
said :  "The  plaintiff  seeks  to  recover  contribution  from  the  corpora- 
tion as  cosurety  on  the  bond  of  the  brewing  company,  and  claims 
(1)  that  the  contract  of  suretyship  was  within  the  defendant's  cor- 
porate powers;  and  (2)  that  if  it  were  not  within  the  defendant's 
corporate  powers  it  has  so  acted  on  the  contract  as  to  now  estop  it 
from  pleading  ultra  vires.  *  *  *  Whatever  meaning  may  be  at- 
tached to  the  language  of  the  articles,  it  is  quite  certain  it  can  not 
include  the  contract  of  suretyship  in  question.  The  simple  act  of 
going  security  for  another  is  out  of  the  line  of  the  prosecution  of 
any  business.  It  is  a  mere  accommodation,  and  it  can  not  be  as- 
sumed that  the  articles  gave  the  officers  of  defendant  any  power  to 
jeopardize  its  capital  in  any  such  venture."  Quoting  from  other  au- 
thorities, it  is  there  further  said :  "It  is  no  part  of  the  ordinary 
business  of  commercial  corporations,  and,  a  fortiori,  still  less  so  of 
noncommercial  corporations,  to  become  surety  for  others.  Under 
ordinary  circumstances,  without  positive  authority  in  this  behalf  in 
the  grant  of  corporate  power,  all  engagements  of  this  description 
are  ultra  vires,  whether  in  the  indirect  form  of  going  on  accommo- 
dation bills  or  otherwise  becoming  liable  for  the  debts  of  others. 
Green's  Brice's  Ultra  Vires,  252 ;  Madison  Plankroad  Co.  v.  Wrater- 
town  Plankroad  Co.,  7  Wis.  59."  These  authorities  are  clearly  in 
point  here,  and  lead  to  the  conclusion  that  the  act  of  appellant  in 
signing  this  bond,  instead  of  being  the  exercise  of  a  delegated  au- 
thority, was  an  attempt  to  execute  powers  not  conferred  upon  it, 
either  expressly  or  by  implication. 

In  reaching  this  conclusion  we  have  not  overlooked  the  contention 
of  appellee  that  the  execution  of  the  bond  by  appellant  was  in  fur- 
therance of  its  business,  and  that  this  fact  has  been  found  adversely 
to  appellant  by  the  appellant  court  and  is  therefore  not  open  to  re- 
view here.  This  position  is  based  upon  the  assumption  that  Rounds 
was,  at  the  time  of  the  suit  against  him  for  possession  of  the  prem- 
ises, engaged  in  selling  beer  in  the  house  and  that  appellant  was 
furnishing  him  the  beer ;  that  the  bond  was  executed  on  the  part  of 
the  brewing  company  in  order  to  enable  him  to  retain  possession  of 
the  property  and  continue  his  business  therein  and  to  make  further 
.purchases  from  the  company.    If  all  this  were  true,  the  benefits  to 


26  THE    CONTRACT 

accrue  to  the  corporation  would  certainly  be  of  the  most  precarious 
and  remote  character.  But  we  have  searched  the  record  in  vain  for 
-  evidence  tending  to  support  the  assumption.  The  testimony  wholly 
fails  to  prove,  nor  does  it  fairly  tend  to  prove,  that  Rounds  was 
engaged  in  any  occupation  calculated  to_jjroniote_the  business  of  ap- 
pellant, or  that  the  business  of  the  corporation^yyas  promoted  or 
benefited,  in  any  degree,  by  reason  of  the  execution  ofthe  bond.^ 
Treating  these  as  questions  of  fact  material  to  the  decision  of  the 
case,  they  are  open  to  review  in  this  court  as  a  question  of  law,  un- 
der the  assignment  of  errors  questioning  the  ruling  of  the  trial  court 
in  refusing  the  motion  of  defendant  for  a  peremptory  instruction  to 
find  for  it,  made  at  the  close  of  all  the  evidence. 

Plaintiff  below  wholly  failed  to  make  out  a  cause  of  action  against 
this  appellant,  and  the  circuit  court  improperly  refused  to  instruct 
the  jury  to  return  a  verdict  in  its  favor.    The  judgment  of  the  ap- 
pellate court  will  accordingly  be  reversed. 
Judgment  reversed. 

See  also  Davis  v.  Old  Colony  R.  Co.,  131  Mass.  258,  41  Am.  Rep.  221  ;  West- 
ern Maryland  Railroad  Co.  v.  Blue  Ridge  Hotel  Co.,  102  Md.  307,  62  Atl.  351, 
2  L.  R.  A.  (N.  S.)  887,  111  Am.  St.  362;  Coleman  v.  Eastern  Counties  Rail- 
way Co.,  10  Beav.  1. 

Note :  A  corporation  has  no  authority  to  indorse  or  guarantee  the  commer- 
cial paper  of  another  unless  express  power  to  do  so  is  conferred  by  its  char- 
ter, or  unless  such  contract  is  reasonably  necessary  or  is  usual  in  the  conduct 
of  its  business.  Monarch  v.  Farmers  &  Traders'  Bank,  105  Ky.  430,  49  S.  W. 
317,  88  Am.  St.  310;  Bank  of  Genesee  v.  Patchin  Bank,  13  N.  Y.  309;  Dobson 
v.  Moore,  164  111.  110,  45  N.  E.  243,  56  Am.  Rep.  184;  National  Park  Bank  v. 
German-American  M.  W.  &  S.  Co.,  116  N.  Y.  281,  22  N.  E.  567,  5  L.  R.  A. 
673 ;  Bowen  v.  Needles  National  Bank,  87  Fed.  430. 

A  bona  fide  holder  of  such  paper,  who  has  taken  it  without  notice  that  it 
was  for  accommodation,  may  enforce  it  against  the  corporation.  Bank  of 
Genesee  v.  Patchin  Bank,  supra;  Jacobs  Pharmacy  Co.  v.  Southern  Banking 
Co.,  97  Ga.  573,  25  S.  E.  171. 


JOHN  WINN  v.  FREDERICK  C.  SANFORD 
145  Mass.  302,  14  N.  E.  119,  1  Am.  St.  461  (1887). 

Contract  against  the  surety  upon  the  following  bond,  executed  by 
Susan  B.  Winn  as  principal,  and  by  the  defendant  as  surety : 

"Know  all  men  by  these  presents,  that  we,  Susan  B.  Winn,  wife 
of  John  Winn,  of  Nantucket,  as  principal,  and  Frederick  C.  San- 
ford,  of  Nantucket,  as  surety,  are  holden  and  stand  firmly  bound 
unto  John  Winn,  of  Nantucket,  above  named,  in  the  sum  of  three 
hundred  dollars,  to  the  payment  of  which  to  the  said  John  Winn, 
or  his  executors,  administrators,  or  assigns,  we  hereby  jointly  and 
severally  bind  ourselves,  our  heirs,  executors  and  administrators. 
The  condition  of  this  obligation  is  such,  that  whereas,  in  a  settle- 


27 

CAPACITY    OF    THE    PARTIES  ^/ 

ment  of  differences  between  said  John  Winn  and  Susan  B.  Winn, 
it  was  agreed  by  said  Susan  B.  Winn,  and  on  her  behalf,  that  she 
should  give  to  said  John  Winn  a  bond,  with  surety,  'to  release  dower 
whenever  requested,  and  make  no  further  claim  on  said  John  Winn 
for  any  support  or  for  any  cause  whatever.'  Now  therefore,  if  said 
Susan  B.  Winn  shall,  whenever  requested,  sign  release  of  dower  in 
any  real  estate  of  said  John  Winn,  and  shall  make  no  further  claim 
upon  him  for  any  support  or  for  any  cause  whatever,  then  this  obli- 
gation shall  be  void;  otherwise  it  shall  be  and  remain  in  full  force 
and  virtue." 

Trial  in  the  superior  court,  without  a  jury,  before  Thompson,  J., 
who  ruled,  as  a  matter  of  law,  "that  the  bond  sued  on  can  not  be 
made  the  basis  of  any  legal  claim  against  the  defendant ;  that,  Mrs. 
Winn  not  being  liable  to  her  husband  under  it,  the  defendant  is  not 
liable;"  and  found  for  the  defendant.  The  plaintiff  alleged  excep- 
'    tions. 

V  Devens,  J. :  It  is  true,  as  a  general  proposition,  that  the  liability 
of  a  guarantor  or  of  a  surety  is  limited  by  that  of  his  principal.  But 
to  this  there  are  certain  exceptions.  Thus,  where  the  principal  is 
excused  from  liability  for  reasons  personal  to  himself,  and  which 
do  not  affect  the  debt  he  has  incurred  or  the  promise  he  has  made, 
the  surety  would  not  be  entitled  to  the  benefit  of  this  excuse.  In 
such  case  he  is,  in  a  certain  sense,  an  independent  promisor,  and 
must  perform  his  promise. 

In  Maggs  v.  Ames,  4  Bing.  470,  the  defendant  had  guaranteed  the 
purchases  made  by  a  married  woman  incapable  of  making  a  con- 
tract ;  the  question  in  the  case  was  whether  this  guaranty  should 
have  been  in  writing ;  but  it  is  assumed  throughout,  by  court  and 
counsel,  that,  if  it  had  been  in  writing,  the  defendant  would  have 
been  liable,  although  there  could  have  been  no  liability  on  the  part 
of  the  principal. 

In  a  similar  manner,  where  one  becomes  a  surety  for  the  perform- 
ance of  a  promise  made  by  a  person  incompetent  to  contract,  his 
contract  is  not  purely  accessorial,  nor  is  his  liability  necessarily 
ascertained  by  determining  whether  the  principal  can  be  made  liable. 
Fraud,  deceit  in  inducing  the  principal  to  make  his  promise,  or  il-J 
legality  thereof,  all  of  which  would  release  the  principal,  would  re- 
lease the  surety,  as  these  affect  the  character  of  the  debt;  but  in-' 
[capacity  of  the  principal  party  promising  to  make  a  legal  contract,  if 
Understood  by  the  parties,  is  the  very  defense  on  the  part  of  the 
principal  against  which  the  surety  assures  the  promisee.  Yale  v. 
Wheelock,  i09  Mass.  502. 

The  bond  in  the  case  at  bar  is  several,  as  well  as  joint.   It  appears 
from  it  that  Mrs.  Winn  is  the  wife  of  the  obligee,  and  it  recites  the 
agreement  made  between  them.  iThis  agreement  made  by  her  is"/ 
void,  so  far  as  the  case  now  discloses,  solely  because  of  her  inca- 
pacity to  contract;  but  this  should  not  release  the  defendant  from 


28  THE    CONTRACT 

his  engagement  that  she  should  perform  the  promise  made  by  her. 
The  defense  which  Mrs.  Winn  personally  has,  resulting  from  her 
situation,  should  not  be  open  to  him. 

Nor  do  we  perceive  that  any  distinction  can  be  made,  as  suggested 
by  the  defendant,  between  the  promise  of  a  married  woman,  which 
is  void,  and  that  of  a  minor,  which  is  voidable.  In  either  case,  the 
surety  assures  the  promisee  against  the  incapacity  of  the  principal 
to  make  a  legal  contract,  whether  it  be  more  or  less  complete. 

The  cases  in  which  it  has  been  held  that  the  coverture  of  the  prin-! 
cipal  promisor  at  the  time  of  making  her  promise  will  not  discharge! 
the  surety,  when  such  coverture  was  known  to  him,  are  numerous^ 
and  have  arisen  on  many  descriptions  of  contract.  Smyley  v.  Heaa, 
2  Rich.  (S.  Car.)  590;  Kimball  v.  Newell,  7  Hill  116;  Nabb  v. 
Koontz,  17  Md.  283;  Jones  v.  Crosthwaite,  17  Iowa  393;  Weed 
Sewing  Machine  Co.  v.  Maxwell,  63  Mo.  486;  St.  Albans  Bank  v. 
Dillon,  30  Vt.  122;  Davis  v.  Statts,  43  Ind.  103;  Stillwell  v.  Ber- 
trand,  22  Ark.  375. 

Exceptions  sustained. 


JOHN  HOLM  v.  EGBERT  JAMIESON  " 

173  ///.  295,  SO  N.  E.  702,  45  L.  R.  A.  846  (1898). 

Mr.  Chief  Justice  Phillips  delivered  the  opinion  of  the  court: 
On  May  16,  1893,  at  Chicago,  111.,  the  Great  Western  Wire 
Works,  by  E.  B.  Filkins,  treasurer,  executed  its  note  for  $1,500,  due 
sixty  days  after  date,  payable  to  itself,  with  six  per  cent,  per  annum 
interest  after  maturity,  with  power  of  confession  of  judgment, 
which  note  was  indorsed,  "Pay  to  the  Central  Trust  and  Savings 
Bank  or  order. — Great  Western  Wire  Works,  by  E.  B.  Filkins." 
This  note  came  to  the  hands  of  John  Holm,  who  brought  suit  on  the 
'guaranty  indorsed  thereon,  which  is  as  follows :  "I  hereby  guarantee 
the  prompt  payment  of  the  within  note. — E.  A.  Filkins,  Egbert 
Jamieson." 

The  declaration  alleges  that  upon  the  consideration  that  the  Cen- 
tral Trust  and  Savings  Bank  would  discount  the  note  if  the  defend- 
ants would  guarantee  the  prompt  payment  thereof,  the  defendants, 
for  the  consideration  aforesaid,  did  guarantee  the  payment  of  the 
same  to  the  Central  Trust  and  Savings  Bank.  That  bank,  relying 
upon  the  guarantee  of  the  defendants,  discounted  the  note  for  the 
maker.  After  the  guaranty  of  the  note  by  Filkins  and  Jamieson,  and 
its  indorsement  to  the  Central  Trust  and  Savings  Bank,  that  bank 
made  a  second  indorsement  thereon,  as  follows  :  "Pay  to  John  Holm 
or  order. — Central  Trust  and  Savings  Bank,  by  W.  A.  Paulsen." 
John  Holm  having  brought  suit  on  the  guaranty  indorsed  on  said 
note,  against  Egbert  Jamieson,  one  of  the  guarantors,  the  latter  ap- 
peared and  filed  a  plea  of  general  issue  and  a  special  plea,  in  which 


■J  -         ^M^    '--^ 

CAPACITY   OF    THE    PARTIES  29 

it  was  set  forth  that  William  Holland,  Merchant  &  Co.  (a  corpora- 
tion), and  other  corporations  and  individuals,  filed  their  bill  of  com- 
plaint against  the  Great  Western  Wire  Works,  Sadie  H.  Filkins, 
Edward  A.  Filkins,  John  Holm,  Charles  B.  Morrow  and  Edward 
B.  Filkins,  in  which  'it_was  averred  that  a  note  held  by  John  Holm, 
and  numerous  other  notes  similarly  executed,  were  fraudulent  and 
void  because  of  the  fact  that  there  was  no  authority  in  the  treasurer 
to__execute  the  same,  and  asking  the  cancellation  of  the  judgment 
heretofore.entered  on  said  note  of  John  Holm,  and  that  said  notes 
bg__de.clared  fraudulent  and  void  and  be  canceled  and  surrendered, 
and  that  judgment  entered  upon  the  said  notes  so  executed  be  va- 
cated and  annulled.  A  decree  was  entered,  on  the  hearing,  in  ac- 
cordance with  the  prayer  of  the  bill,  and  these  facts  by  the  special 
plea  are  averred.  It  is  therein  further  averred  that  the  contract  of 
guaranty  was  written  on  paper  on  which  said  fraudulent  and  void 
promissory  note  was  written,  without  any  other  or  different.consjd- 
eration  than  the  consideration  for  the  said  promissory  note,  which 
promissory  note  was  declared  to  be  fraudulent  and  void  and  decreed 
to  ~be  canceled,  and  the  plea  further  averred  that  said  decree  was  in 
full  force. 

It  is  insisted,  first,  by  the  appellant,  that  the  decree  set  up  in  the 
plea  by  which  the  note  on  which  the  guaranty  was  indorsed  and 
which  was  the  basis  of  this  action  was  not  res  judicata  as  to  the  de- 
fendant Tamieson,  who  was  not  a  party  thereto,  and  that  that  decree 
would  be  no  bar  to  the  prosecution  of  the  suit  on  the  guaranty  in- 
dorsed on  the  note.  The  contention  of  appellee  is,  that  as  there  is  no 
debt  or  obligation  due  and  owing  to  the  appellant  from  the  maker 
of  the  note,  there  is  nothing  due  and  owing  to  the  plaintiff  from  the 
guarantors  of  the  note ;  that  as  the  maker  of  the  note  has  been  re- 
leased and  discharged  by  reason  of  the  decree,  and  the  guarantors 
have  been  deprived  of  their  right  of  action  over  or  subrogation  as 
against  the  maker,  there  can  be  no  liability  as  against  the  guarantors. 
The  note  of  the  Great  Western  Wire  Works  having  been  executed 
by  one  without  authority  to  execute  such  a  note,  as  found  in  the 
decree  set  up  in  the  plea,  by  that  decree  the  note  was  declared  for 
that  reason  fraudulent  and  void.  To  the  proceeding  by  which  this 
decree  was  so  entered  the  appellant,  John  Holm,  was  a  party,  but 
the  appellee,  Egbert  Jamieson,  was  not  made  a  party  thereto.  We 
do  not  deem  it  necessary  to  enter  into  an  extended  discussion  of  the 
question  as  to  the  effect  of  the  decree  on  parties  and  privies,  and  as 
to  its  being  of  no  effect  in  binding  persons  who  were  not  parties  to 
the  proceeding.  The  material  question  in  this  case  to  be  determined  " 
iS)  whatisjhfi-effeet-o^-the -contract  entered  into  by  the  defendants  ■ 
in  guaranteeing  payment  of  the  note  in  the  language  they  did,  and 
hoWis  that  guaranty  affected  by  a  decree  declaring  the  note  itself 
on  which  the  guaranty  was  written,  and  the  payment  of  which  was 
so  guaranteed,  void. 


\A*\ 


/ 


30  THE    CONTRACT 

The  language  used  in  this  guaranty,  "I  hereby  guarantee  the 
prompt  payment  of  the  within  note,"  by  its  terms  fixed  the  time  at 
which  the  payment  was  to  be  made  as  of  the  date  of  the  maturity  of 
the  note,  and  if  the  payment  is  not  made  by  the  maker  within  the 
time  fixed  in  the  note  there  is  a  breach  of  the  guaranty,  on  which  a 
liability  exists,  regardless  of  the  fact  that  no  steps  have  been  taken 
against  the  principal.  (Gridley  v.  Capen,  72  111.  11;  Gage  v.  Me- 
chanics' Nat.  Bank,  79  id.  62.)  A  different  rule  exists  when  a  de- 
fense is  made  to  a  note  by  reason  of  payment  or  a  proper  set-off. 
In  such  case  a  defense  exists  to  the  guarantor  to  the  same  extent 
as  to  the  maker.  A  guarantor  may  make  a  contract  which  is  col- 
lateral or  one  which  is  independent.  This  guaranty  was  an  absolute 
undertaking  that  the  maker  would  pay  the  note  when  due,  and  by 
the  default  of  the  principal  an  immediate  liability  existed,  j  The  un- 
|  dertaking  of  the  guarantor  was  an  independent  contract,  not  resting 
/  on  a  necessity  to  exhaust  a  remedy  against  the  maker,  but  by  the 
/  terms  used  in  the  guaranty  it  was  an  undertaking  to  every  subse- 
j  quent  holder  that  the  instrument  guaranteed  was  perfectly  validJ  By 
I  a  guaranty  "of  this  character  the  guarantor  undertakes  to  every  sub- 
sequent holder  that  the  names  of  the  maker  and  previous  indorsers 
'are  really  in  the  handwriting  of  those  to  whom  they  respectively 
'purport  to  belong;  and  this  is  carried  to  the  extent  that  where  a 
promise  has  been  written  upon  the  note  itself,  a  person  guarantee- 
ing the  payment  of  that  note  is  bound,  even  though  the  names  of 
prior  parties,  or  some  one  of  them,  were  in  fact  forged.  (Veazie  v. 
Willis,  6  Gray  90.)  And  it  has  been  held  that  where  a  party  to  a 
certificate  of  deposit  transferred  it  to  another  who  had  no  connec- 
tion with  and  was  ignorant  of  the  circumstances  attending  its  origin, 
with  the  guaranty  of  the  payment  thereof,  the  guarantor  was  liable 
for  the  amount  of  the  certificate,  although  it  was  void  for  matter 
dehors  its  face ;  and  the  court  'said  the  guaranty  was,  in  effect,  the 
representation  that  the  instrument  or  claim  was  perfectly  valid,  as 
well  as  a  promise  to  pay  it.  Purdy  v.  Peters,  35  Barb.  239. 

Under  the  terms  of  this  declaration  the  guaranty  of  the  payment 
of  the  note  by  the  signers  to  that  guaranty  was  a  condition  prece- 
dent to  its  purchase  by  the  Central  Trust  and  Savings  Bank,  and  it 
is  further  averred  that  its  acceptance  by  that  bank  was  because  of 
its  reliance  on  the  guaranty.  The  contract  thus  made  by  the  guar- 
antors of  the  note  was  a  promise  as  to  its  legality,  and  a  liability 
which  was  not  dependent  on  the  prosecution  of  a  suit  against  the 
maker  of  the  note  nor  dependent  on  the  validity  or  legality  of  the 
note.  If  the  liability  of  a  guarantor  of  commercial  paper  were  de- 
pendent on  extraneous  circumstances  not  appearing  on  or  suggested 
by  the  face  of  the  instrument,  and  such  guaranty  might  be  rendered 
invalid  because  of  fraud,  forgery  or  other  circumstances  that  might 
be  set  up  as  between  the  maker  and  the  acceptor  of  the  paper,  it 
would  practically  destroy  the  value  of  the  commercial  paper  and 


CONSIDERATION  31 

unsettle  business  transactions,  to  the  great  detriment  of  public  in- 
terestsT /The  guaranty  is  a  contract  by  which  the  validity  of  the  in-  U 
sTriimenr  jTrepnTipntPfl,  nn^is  Mnding  ^nTfi^"  ffn?rnntr>r  to  the  full 
effect  of  such  representation.  Such  being  the  case,  the  fact  that  the 
Western  Wire  Works,  whose  name  was  appended  to  the  note,  was 
placed  there  by  the  treasurer  without  authority,  thereby  rendering  its 
execution,  as  against  the  maker,  invalid,  did  not  change  the  liability 
of  the  guarantor  on  his  contract,  because  its  effect — the  effect  of  the 
contract  of  the  guarantor — was  to  represent  the  note  as  valid  and 
binding.  Such  liability  existing  by  reason  of  the  guaranty  was  not 
defeated  because  of  the  want  of  authority  of  the  maker  of  the  note 
to  sign  the  name  of  the  corporation. 

The  decree  entered  declaring  the  note  fraudulent  and  void  be-  7  "y4^c-^ 
cause  of  the  want  of  authority  in  the  treasurer  to  sign  the  name  of  r 
the  corporation  thereto  did  not  constitute  a  defense  in  favor  of  the 
guarantors,  and  the  plea  was  bad.   The  demurrer  was  properly  sus- 
tained by  the  trial  court.    It  was  error  in  the  appellate  court  to  re- 
verse the  same. 

The  judgment  of  the  superior  court  of  Cook  county  is  affirmed 
and  that  of  the  appellate  court  for  the  first  district  is  reversed. 

Judgment  reversed. 

See  also  Goodell  v.  Bates.  14  R.  I.  65 ;  Weare  v.  Sawyer,  44  N.  H.  198 ;  Lee 
v.  Yandell,  69  Tex.  34,  6  S.  W.  665;  Gates  v.  Tebbetts,  83  Nebr.  573,  119  N. 
W.  1120,  20  L.  R.  A.  (N.  S.)  1000,  17  Am.  Cas.  1183;  Kyger  v.  Sipe,  89  Va. 
507,  16  S.  E.  627. 

Cut  if  an  infant  on  attaining  his  majority  disaffirm  the  contract  and  return 
the  consideration  the  surety  will  be  discharged.  Baker  v.  Kennett,  54  Mo.  82 ; 
Keokuk  County  Bank  v.  Hall,  106  Iowa  540,  76  N.  W.  832. 

A  surety  on  the  bond  of  a  contractor  can  not  set  up  as  a  defense  the  fact 
that  the  contract  between  the  municipality  and  the  contractor  was  ultra  vires 
on  the  part  of  the  municipality,  in  an  action  on  the  bond  brought  by  a  mate- 
rialman who  had  furnished  materials  to  the  contractor.  Bell  v.  Kirkland,  102 
Minn.  213,  113  N.  W.  271,  13  L.  R.  A.  (N.  S.)  793,  120  Am.  St.  621. 


SECTION  3.    CONSIDERATION 


PAUL  v.  STACKHOUSE  ^ 

38  Pa.  St.  302  (1861). 

Error  to  the  common  pleas  of  Bucks  county. 

This  was  an  action  of  assumpsit,  brought  August  11,  1860,  by 
Elizabeth  Stackhouse  to  the  use  ot  Miles  Shin  against  Morris  Paul, 
on  a  promissory  note.  To  a  declaration  in  the  usual  form  the  de- 
fendant i  >leafleTrnonassumpsit. 

On  the  trial  the  plaintiff  offered  in  evidence  the  following  promis- 
sory note : 


i 

32  THE    CONTRACT 

Warminster,  4th  mo.,  2d,  1857. 
"One  year  after  date  I  promise  to  pay  to  Elizabeth  Stackhouse 
the  sum  of  three  hundred  dollars,  for  value  received,  with  lawful 
interest  until  paid.  "Elwood  Sprogle. 

"Morris  Paul." 

The  interest  for  two  years  had  been  paid,  as  appeared  by  indorse- 
ment on  the  note. 

The  witness  by  whom  the  execution  of  the  note  was  proved  testi- 
fied that  he  wrote  the  note,  saw  the  money  paid  to  Sprogle,  and  saw 
him  sign  the  note;  that  Miss  Stackhouse  was  not  willing  to  let 
Sprogle  have  the  money  unless  Morris  Paul  would  go  his  security; 
that  on  the  5th  of  April,  1858,  the  witness  took  the  note  to  Paul, 
telling  him  that  Miss  Stackhouse  wanted  his  name  on  it  as  security ; 
that  Paul  replied  that  he  had  promised  Sprogle  that  he  would  go 
security  on  the  note,  but  though  he  ought  not  to  do  it,  he  would  do 
it ;  that  he  then  signed  his  name  to  the  note,  saying  he  would  pay 
her  in  a  year  or  two ;  but  that  he  did  not  say  when  he  had  made  this 
promise  to  Sprogle. 

Plaintiff  then  proposed  to  show  by  this  witness  that  Elizabeth 
Stackhouse,  at  the  time  the  money  was  borrowed,  refused  to  let 
Sprogle  have  the  money  unless  he  would  give  security,  and  she 
agreed  to  take  him,  and  that  she  gave  the  money  and  took  the  note 
with  Sprogle's  signature  only,  with  the  understanding  between  her 
and  Sprogle  that  he  was  to  procure  the  signature  of  Paul  to  it  after- 
ward as  security. 

Woodward,  J. :  The  contract  of  suretyship  rests  necessarily  upon 
a  consideration  that  is  valuable.  The  consideration  may  be  in  the 
form  of  an  inconvenience  to  the  party  promised,  or  of  an  advantage 
to  be  gained  by  either  the  principal  debtor  or  the  surety,  and  it  may 
I1  be^ever  so  slight ;  but  in  the  one  form  or  the  other,  a  consideration 
which  the  law  denominates  valuable  must  be  proved,  or  a  surety  can 
not  be  made  legally  liable..  What  is  called  a  moral  obligation  is  in- 
I  sufficient  to  support  the  promise  of  a  surety.  It  is  often  said  in  the 
books,  as  was  laid  down  by  Gibbs,  J.,  in  Lee  v.  Muggeridge,  5 
Taunton  36,  that  wherever  there  is  a  moral  obligation  to  pay  a  debt, 
or  perform  a  duty,  a  promise  to  perform  that  duty  or  pay  that  debt 
will  be  supported  by  the  previous  moral  obligation,  but  it  is  believed 
that  in  all  cases  which  may  be  cited  in  support  of  the  rule,  there  was 
an  original  consideration  beneficial  to  the  party  promising,  and 
which  might  have  been  enforced  on  an  implied  promise,  had  it  not 
been  for  some  statute  provision,  or  some  positive  rule  of  law,  which, 
with  a  view  to  the  general  good,  exempted  the  party  from  legal  lia- 
bility in  the  particular  instance.  See  the  cases  cited  in  note  to  Ed- 
wards v.  Davis,  16  Johns.  284.  See  also  Mills  v.  Wyrnan,  3  Pick. 
207;  Smith  v.  Ware,  13  Johns.  257,  and  C.  J.  Gibson's  observations 
in  Kennedy  v.  Ware,  1  Barr  445. 


CONSIDERATION  33 

-uJL.    •  <■   ''    '■- 1  ■   ■ 

Many  of  these  cases  have  reference  to  the  action  of  assumpsit 
against  the  original  or  principal  promisor ;  but  they  apply  all  the 
more  forcibly  to  the  action  when  brought  against  a  surety,  for  his 
liabilities  are  measured  by  no  equitable  or  moral  standard,  but  only 
by  rules  of  sheer  law. 

The  plaintiff  in  error  was  not  to  be  holden,  therefore,  on  the 
ground  of  a  prior  moral  obligation,  and  the  judgment  against  him 
can  not  be  supported  on  that  footing.  Still,  however,  we  think  it 
sustainable.  Taking  the  evidence  contained  in  the  first  and  second 
specifications  of  error,  it  may,  without  undue  license,  be  treated  as 
Paul's  request  to  Miss  Stackhouse,  to  lend  Sprogle  the  money  in 
question.  He  promised  Sprogle  he  would  go  his  security,  and  this 
was  an  authority  to  the  latter  to  say  so  to  the  creditor.  Sprogle  com- 
municated it  to  Miss  Stackhouse,  and  she  let  Sprogle  have  the 
money  on  the  faith  of  Paul's  promise  thus  sent  to  her.  What  was 
this  but  saying,  Let  Sprogle  have  the  money,  and  I  will  be  his  surety 
for  the  repayment  ?  The  money  was  loaned,  and  a  note  taken  at  a 
year,  signed  only  by  Sprogle.  Three  days  after  the  year  was  up  Paul 
signed  it.  There  was  his  contract  fully  completed ;  but  completed,  it 
isjsaid,  on  a  consideration  that  was  past  and  executed. 

It  is  true,  as  a  general  rule,  that  the  consideration  which  binds  a 
surety  must  be  executory ;  but  where  the  tiling  was  done  at  the  in- 
stance or  request  of  the  surety,  a  past  consideration  binds  him.  Pit- 
man, in  his  excellent  little  treatise  on  Principal  and  Surety,  p.  57, 
Law  Library,  vol.  40,  states  the  rule  in  regard  to  past  considerations 
by  the  instance  of  the  old  case  of  Hunt  v.  Bate,  3  Dyer  272,  where 
A.'s  servant  was  arrested  in  London  for  a  trespass,  and  J.  S.,  who 
was  well  acquainted  with  the  master,  bailed  the  servant,  and  after- 
ward A.,  for  his  friendship,  promised  to  save  him  harmless,  and 
J.  S.  was  compelled  to  pay  the  condemnation  money,  it  was  held  that 
an  action  did  not  lie  upon  A.'s  promise,  because  the  bailing,  which 
was  the  consideration,  was  past,  and  executed  before.  A  considera- 
tion, therefore,  says  this  writer,  which  is  executed,  is  not  sufficient 
to  support  a  subsequent  promise,  unless,  indeed,  the  act  was  done 
at  the  request  of  the  party  promising,  for  then  the  promise  is  not 
a  naked  one,  but  couples  itself  with .  the  precedent  request,  and 
is  therefore  founded  on  a  good  consideration.  Some  of  the  cases 
he  cites  in  support  of  the  latter  branch  of  the  rule  do  not  sustain 
the  proposition ;  but  others  do.  It  was  said  by  Mr.  Justice  Wilmot, 
in  1765,  in  Pillans  &  Rose  v.  Mierop  &  Hopkins,  3  Burrows  1671, 
that  it  was  then  settled  that  where  the  act  is  done  at  the  request  of 
the  person  promising,  it  will  be  a  sufficient  foundation  to  graft  the, 
promise  upon.  He  pronounced  many  of  the  old  cases,  and  some  of 
the  modern  ones  that  were  inconsistent  herewith,  to  be  "strange  and 
absurd,"  and  declared  that  the  rule  as  to  past  considerations  "has 
been  melting  down  into  common  sense  of  late  times." 
3 — De  Witt. 


34 


THE    CONTRACT 


«*? 


It  is  necessary  to  lay  a  precedent  request  in  cases  where  the  con- 
sideration was  executed  and  bygone  at  the  time  of  the  promise ;  1 
Saund.  Rep.  264a,  and  the  cases  in  notes.  Possibly  the  plaintiff's 
narr.  is  defective  in  this  respect,  but  as  a  copy  of  it  has  not  been 
furnished  us,  we  will  not  presume  it  defective  after  verdict  and 
judgment.  -. 

On  this  ground,  therefore,  that /the  money  was  loaned  to  Sprogle 
at  the  instance  and  request  of  Paul,,  we  hold  him  bound  by  his  sub- 
sequent promise.  The  consideration  for  his  promise,  though  past, 
was  a  continuing  and  valuable  consideration  and  his  signature  to  the 
note  was  a  completion  and  full  execution  of  the  promise  upon  that 
consideration.}  It  is  not  essential  that  a  consideration  move  to  the 
surety — it  is  sufficient  if  the  principal  derive  a  benefit  from  the 
promise. 

This  is  the  ground  upon  which  the  judgment  in  Hemphill  v.  Mc- 
Climans,  12  Harris  367,  ought  to  have  been  placed.  The  son  of  a 
married  woman  contracted  with  builders  for  the  stonework  of  a 
grist-mill.  After  part  of  the  work  had  been  done,  they  refused  to 
proceed  further  without  security  for  payment,  and  Airs.  Hemphill 
then  promised  to  see  them  paid.  They  went  on  and  finished  the 
work;  she  became  discovert,  and  after  that  renewed  her  promise 
to  pay.  Her  first  promise  was  void  because  of  the  disabilities  of 
marriage,  and  her  promise  after  discoverture  was  resisted  for  want 
of  consideration.  A  majority  of  the  court  insisted  on  resting  her 
legal  liability  on  her  moral  obligation,  and  that  has  made  the  case 
a  mischievous  precedent.  A  moral  obligation,  no  doubt,  there  was 
to  pay  for  labor  which  she  had  induced  others  to  expend  for  the 
benefit  of  her  son,  but  like  most  moral  obligations  it  was  enforceable 
in  foro  conscientiae,  rather  than  in  a  court  of  law.  The  law  com- 
pels nobody  to  become  surety  for  another.  The  relation  of  principal 
and  surety  rests  wholly  in  contract,  and  the  law  enforces  contracts 
only  that  are  founded  in  some  consideration.  But  the  work  having 
been  finished  at  Airs.  Hemphill's  instance,  her  subsequent  promise, 
when  she  became  able  to  contract,  should  have  been  coupled  with 
the  precedent  request,  and  thus  a  valid  consideration,  though  past 
and  bygone,  would  have  been  found. 


Accord :   Laingor  v.  Lowenthal,  151  111.  App.  599. 


CONSIDERATION  35 

JOSEPH  BICKFORD  v.  DAVID  N.  GIBBS  ET  AL.  ■< 

8  Cush.  (Mass.)  154  (1851). 

Shaw,  C.  J. :  Assumpsit  to  recover  the  amount  of  a  note  given  by 
one  May,  and  guaranteed  by  the  defendants. 

~~Th~e  exception  is  also  taken  that  as  th^j^jjtraniy-jwjis  a  contract 
collateral  to  the  note,  a  distinct  consideration  should  be  proved. 
There  would  be  force  in  this  objection,  had  the  guaranty  been  made 
after  the  note  had  been  made,  delivered  and  received  as  a  complete 
contract.  But  when  the  guaranty  is  made  on  the  note  before  its  de- 
livery by  the  maker  to  the  promisee  it  must  be  deemed  to  be  done 
/  for  the  benefit  of  the  maker^ro  add  to  the  strength  of  the  note  and 
to  induce  the  promisee  to  take  it  and  advance  his  money  on  it;  and 
no  other  consideration  is  necessary  than  the  credit  thus  given  to 
the  maker. 

Accord :   Joslyn  v.  Collinson,  26  111.  61. 


\    SIMMANG  v.  FARNSWORTH  -" 

24  S.  W.  541.   Court  of  Civil  Appeals  of  Texas  (1893). ~"  • 

Fly,  J. :    Appellee,  who  was  plaintiff  below,  sued  appellant  on  a 
note_£ox4200,  signed  by  him  ancTone  John  Cavanaugh.    Appellant 

answered  that  he  had  signed  the  note  as  a  surety  some  time  after  the 
consideration  had  passed  between  appellee  and  Cavanaugh,  and  that 
there  was  no  consideration  passed  to  him  for  signing  said  note.    The 


evidence  shows  that  the  note  was  executed  on  December  19,  1888, , 
and  was  at  that  time  only  signed  by  Cavanaugh,  and,  thus  signed,  '"" 
was  delivered  to  appellee.  Appellant  was  not  present  at  this  time. 
The  note  was  given  for  a  one-third  interest  in  machinery,  the  other 
interests  being  owned  by  appellee  and  one  Charles  Simmang.  Ap- 
pellant  did  not  sign  the  note  until  in  January,  1889,  after  the  ma- 
chinery was  in  running  order.  It  was  handed  to  appellant  by  Cav- 
anaugh, who  requested  him  to  sign  it  A  There  is  but  one  point  to 
consider  in  order  to  arrive  at  a  conclusion.  If  the  consideration  had 
not  passed  between  Cavanaugh  and  Farnsworth  at  the  time  that  the 
note  was  signed  by  appellant,  then  the  appellant  is  responsible,  and 
the  judgment  of  the  lower  court  is  correct,  and  should  not  be  dis- 
turbed ;  if,  however,  the  consideration  had  passed  and  become  exe- 
iJcuted  before  the  appellant  signed  the  note,  then  his  signing  was  no 
Jpart  of  the  inducement  to  the  creation  of  the  original  dejbtas  evi- 
/  denced  by  the  note,  and  appellant  is  not  responsible.    1  Bnm7lt7~Sur. 


iL^t 


36 


THE    CONTRACT 


(2nd  ed.),  p.  20,  par.  17;  Baker  v.  Wahrmund,  23  S.  W.  1023 
(decided  by  this  court  at  this  term).  There  must  be  some  consid- 
eration moving  to  the  principal  alone,  contemporaneous  with  or  sub- 
sequent to  the  promise  of  the  surety.  If,  after  the  original  consid- 
eration has  moved  between  the  principal  and  creditor,  the  surety 
signs  upon  a  new  consideration  moving  from  the  creditor  to  the 
principal,  this  is  sufficient.  Also  where  a  promise  is  made  at  the  time 
the  note  is  executed  by  the  principal  that  the  name  of  the  surety 
will  be  obtained  to  the  note,  and  the  surety  afterward  signs  the 
^note,  the  consideration  would  be  legal  and  valid.  But  Avhere  the/ 
•-consideration  between  the  creditor  and  principal  had  paswfTand  be- 
come executed  before  the  contract  of  the  surety  is  made,  and  such 
contract  was  no  part  of  the  inducement  to  the  creation  of  the  orig- 
inal debt,  the  surety  would  not  be  bound.  Jackson  v.  Jackson,  7 
Ala.  791;  1  Brandt,  Sur.  (2nd  ed.),  p.  20,  par.  17.  The  note  was 
executed  by  Cavanaugh  on  December  19,  1888,  at  the  time  of  the 
delivery  of  the  machinery  at  the  depot  in  San  Antonio,  and  the 
note  was  delivered  to  Farnsworth,  who  put  it  in  his  pocket.  The 
note  was  given  for  one-third  interest  in  the  machinery,  and  the  put- 
ting up  of  the  machinery  did  not  seem  to  be  a  part  of  the  consid- 
eration; but,  if  it  was,  it  was  in  complete  running  order  when  ap- 
pellant signed  the  note.    The  note  shows  that  the  consideration  fori 


>■      : 


f 


'its  execution  was  an  interest  in  machinery  furnished  by  Farns-1 
worth.  There  was  no  agreement  at  the  time  that  Cavanaugh  signed 
the  note  that  appellant's  name  would  be  secured  to  the  note,  and 
when  he  signed  it  the  consideration  was  fully  executed  and  the  debt 
had  been  created  without  the  inducement  of  appellant's  suretyship. 
There  was  no  consideration  for  his  signature^  \y^ 

Accord:    Pratt  v.  Hedden,  121  Mass.  116;  Ludwick  v.  Watson,  3  Ore.  256; 
Thomas  v.  Williams,  10  Barn.  &  Cr.  664. 


WILLIAMS  ET  AL.  v.  PERKINS  V 

4 

21  Ark.  18  (1860). 

Mr.  Justice  Compton  delivered  the  opinion  of  the  court. 

This  was  an  action  of  debt,  at  the  suit  of  the  defendant  in  error 
— who  was  plaintiff  below — on  a  writing  obligatory  which  was  as 
follows,  to  wit : 

"$1,894  47-100.  One  day  after  date  we,  or  either  of  us,  promise  to 
pay  to  Nicholas  T.  Perkins,  or  order,  eighteen  hundred  and  ninety- 
four  47-100  dollars;  it  being  a  balance  due  for  the  net  proceeds  of 
seventy-seven  bales  of  cotton  which  Williams  &  Parker  sold  for  him 


37 


CONSIDERATION 

in  New  Orleans,  on  the  25th  day  of  May  last,  with  interest  from 
that  time.  Witness  our  hands  and  seals,  this  2d  day  of  July,  1846. 

"Williams  &  Parker, 
"O.  B.  Parker,  (Seal.) 

"Wm.  T.  Williams,  (Seal.) 

"Gideon  J.  Williams.        (Seal.)" 
/   Gideon  J.  Williams  pleaded  separately  to  the  action:    1st.    That 
the  writing  obligatory  declared  on  was  signed  and  sealed  by  him 
[without  any  consideration.    2d.    Payment.    Similar  pleas  were  filed 
by  William  T.  Williams,  who  also  pleaded  separately. 

The  cause  was  submitted  to  a  jury,  who  returned  a  verdict  for 
the  plaintiff,  and  judgment  was  rendered  accordingly. 

The  evidence  shows  that  the  writing  obligatory  was  signed  by 
Williams  &  Parker  and  O.  B.  Parker,  as  principal  obligors,  and 
Gideon  J.  Williams  and  William  T.  Williams,  as  sureties.  When  the 
instrument  was  signed  by  tine  principal  obligors  it  was  understood 
between  them  and  Perkins,  the  payee,  that  the  sureties  were  to  sign 
it  also— they  being  then  absent.  Perkins  took  the  instrument  and 
afterward  procured  the  signatures  of  the  sureties.  There  is  no  con- 
troversy as  to  the  consideration  which  passed  from  the  payee  to  the 
/principal  obligors.  But  it  is  insisted  that,  at  the  time  the  sureties 
[signed  the  writing  obligatory,  the  consideration  upon  which  it  was 
founded  was  wholly  past  or  executed,  and  was,  therefore,  as  to 
/  them,  insufficient. 

Under  our  statute  this  defense  may  be  made,  though  the  instru- 
ment be  under  seal.   Gould's  Dig.,  ch.  133,  §  75.  >  w 

The  general  rule  is  that  a  past  or  executed  consideration  is  not  ; 
sufficient  to  sustain  a  promise  founded  upon  it,  unless  the  considera-  j 
tion,  though  past,  was  done  or  performed  at  the  request  of  the  party  I 
promising^ Without  such  previous  request  a  subsequent  promise  has 
no  legal  validity;  because  the  consideration  being  entirely  com- 
pleted and  exhausted,'  it  can  not  be  said  that  it  would  not  have  been 
made  or  given  but  for  a  promise  which  is  subsequent  and  independ- 
ent. But  where  the  consideration  and  the  promise  founded  upon  it 
are  simultaneous,  and  the  whole  agreement  is  completed  at  once ;  or 
where  the  consideration  is  to  do  a  thing  in  the  future,  the  promise 
rests  on  a  sufficient  foundation,  and  is  binding  on  the  party  who 
makes  it.  To  illustrate :  If  one  lends  money  to  another  and,  at  a 
subsequent  time,  a  third  party,  who  did  not  request  the  loan,  and  is 
not  benefited  bv  it,  promises  to  see  that  it  is  paid,  such  promise  is 
void,  because  no  consideration  passes  from  the  promisee  to  the 
promisor.  But  if  the  promisor  requests  the  loan,  or  if  his  promise 
is  made  previous  to  the  loan,  or  at  the  same  time,  then  it  will  be 
supposed  that  the  loan  is  made  because  of  the  promise,  which  is  a 
sufficient  consideration  to  bind  the  promisor. 

The  consideration  for  the  promise  of  a  surety  may  be  that  upon 
which  the  liability  of  the  principal  debtor  is   founded.    The  rule 


r^* 


38 


THE    CONTRACT 


A 


seems  to  be  this :  If  the  debt  or  obligation  of  the  principal  debtor  is 
already  incurred  previous  to  the  undertaking  of  the  surety,  then 
there  must  be  a  new  and  distinct  consideration  to  sustain  the  prom- 
ise of  the  surety.  But  lif  the  obligation  of  the  principal  debtor  be 
founded  upon  a  good  consideration,  and,  at  the  time  it  is  incurred, 
or  before  that  time,  the  promise  of  the  surety  is  made,  and  enters 
into  the  inducement  for  giving  credit,  then  the  consideration  for 
which  the  principal  debt  is  contracted  is  regarded  as  a  valid  con- 
sideration, also,  for  the  undertaking  of  the  surety.  Par.  on  Con- 
tracts, 391,  392,  496,  497;  Burge  on  Suretyship,  13,  14,  36;  Jackson's 
Admr.  v.  Jackson  et  al.,  7  Ala.  (N.  S.)  794;  Baily  v.  Croft,  4  Taun- 
ton R.  611. 

It  results,  from  an  application  of  these  principles  to  the  evidence 
adduced,  that  the  proposition  of  the  plaintiffs  in  error  is  not  main- 
tainable. Although  the  payee  took  the  writing  obligatory  at  the  time 
it  was  executed  by  the  principal  obligors,  and  held  it  for  some  length 
of  time — how  long  does  not  appear — before  the  signatures  of  the 
sureties  were  procured,  still,  it  does  not  follow  that  it  was  first  made 
and  signed  by  the  principal  obligors  and  accepted  by  the  payee  as  a 
complete  contract,  and  afterward,  at  another  time,  the  contract  of 
'the  sureties  was  made  as  a  distinct  and  independent  transaction; 
because,  at  the  time  it  was  signed  by  the  principal  obligors  it  was 
expressly  understood  between  them  and  the  payee  that  the  sureties 
would  also  sign  it. 

That  the  payee  did  not  accept  the  writing  obligatory  as  a  com- 
plete contract  until  the  signatures  of  the  sureties  were  obtained  is 
an  irresistible  conclusion  from  the  evidence.  Although  the  signa- 
ires  of  the  principal  obligors  were  procured  at  one  time,  and  those 
of  the  sureties  afterward,  nevertheless,  in  contemplation  of  law, 
their  promises  were  contemporaneous,  and  formed  a  part  of  one  and 
the  same  general  transaction  ;  and  the  same  consideration  which  sup- 
ports the  promise  of  the  one  also  supports  that  of  the  other.  Hence, 
the  sureties  were  clearly  liable  upon  the  instrument  sued  on. 

Accord :   McNaught  v.  McClaughry,  42  N.  Y.  22,  1  Am.  Rep.  487 ;  Moies  v. 
Bird,  11  Mass.  436,  6  Am.  Dec.  179;  Pauly  v.  Murray,  110  Cal.  13,  42  Pac.  313. 


CREARS  v.  HUNTER 

19  L.  R.  Q.  B.  D.  341  (1887). 

Appeal  from  the  order  of  the  Queen's  Bench  Division  (Day  and 
Wills,  J.  J.)  setting  aside  the  verdict  and  judgment  for  the  plain- 
tiff at  the  trial. 

The  facts  in  substance  appeared  to  be  as  follows: 
The  action  was  on  a  promissory  note,  the  defence  being  that  there 
was  no  consideration  for  the  making  of  the  note  by  the  defendant. 


4- 

CONSIDERATION  39 

The  defendant's  father,*  since  deceased,  had,  before  the  defendant 
carne^or_age,  borrowed  a  sum  of  200L.  from  the  plaintiff,  promising 
that  his  son,  the  defendant,  when  of  age,  would  become  surety  for 
the  debt.  In  1877,  the  defendant  being  then  of  age,  the  plaintiff 
brought  a  promissory  note  stamp  to  the  defendant's  house,  where 
the  defendant  then  was,  and  the  promissory  note  now  sued  upon  - 
was  then  drawn  up  and  signed  by  the  defendant's  father  and  the 
defendant.  By  such  note  they  jointly  and  severally  promised  to  pay  -l 
to  the  plaintiff  or  order  "the  sum  of  200L.,  being  money  lent,  with 
interest  on  the  same  from  Martinmas  last  past  half-yearly  at  the 
rate  of  5  per  cent,  per  annum."  There  was  no  evidence  as  to  any- 
thing being  said  by  the  parties  in  relation  to  the  signing  of  the  note. 
Interest  had  been  paid  upon  the  note.  It  appeared  that  on  several 
occasions  such  interest  was  paid  in  the  defendant's  presence,  and 
the  receipts  for  such  payments  of  interest  were  made  out  to  the 
defendant's  father  and  the  defendant  jointly.  The  principal  be- 
ing_still  due,  the  plaintiff  brought  his  action  on  the  note  against  the 
deJiejiolaiilJIIunter  and  his  father's  executor. 

The  learned  judge  at  the  trial,  A.  L.  Smith,  J.,  appeared  in  sub- 
stance, to  have  told  the  jury  that,  if  the  note  was  signed  by  the  de- 
fendant in  order  that  the  plaintiff  might  give  time  to  his  father, 
and  the  plaintiff  did  give  time,  there  would  be  a  good  consideration 
for  the  making  of  the  note  by  the  defendant,  and  he  left  it  to  the 
jury  to  say  whether  there  was  such  consideration. 

Tliejury  found  for  the  plaintiff. 

The  Divisional  Court  set  aside  the  verdict  on  the  ground  that 
there  was  no  evidence  of  consideration,  and  entered  judgment  for 
the  defendant. 

Lord  Esiier,  M.  R. :  In  this  case  the  defendant's  father  had  bor- 
rgjwed_jrj£Uiey_of  the  plaintiff,  and  was  actually  liable  to  pay  the 
amount  so  borrowed.  The  plaintiff  purchased  a  promissory  note 
stamp  and  went  withJLtto  the  house  of  the  defendant's  father,  and 
therefound  the  deXendaut's  father  and  the  defendant,  who  was  at 
that  tlme~  under  no  oblij^ion\yhatever  to  the  plaintiff.  A  promis- 
sory note  was  drawn  up,  which  does  not,  it  is  true,  on  the  face  of  it 
provide  for  any  delay  in  payment  of  the  amount  due  by  the  father, 
because  the  father's  liability  on  the  note  arose  immediately  after  it 
was  signed,  if  the  plaintiff  had  chosen  to  sue  on  it.  The  note  does  - 
nevertheless  indicate  on  the  face  of  it  that,  though  there  was  no  bind- 
ing agreement  to  forbear,  the  parties  did  contemplate  that  the  note 
might  not  be  sued  on  for  some  time,  because  provision  is  made  for 
the  payment  of  interest  half-yearly  by  the  son  jointly  with  the  fa- 
ther.   It  may  be  true  that  there  was  no  evidence  of  any  request  in 


*The  executor  of  the  father  was  joined  as  a  defendant  in  the  action,  but 
had  put  in  no  defense ;  and  for  convenience  sake  the  son  is  referred  to 
throughout  the  report  as  if  he  had  been  the  sole  defendant. 


t 


40  THE    CONTRACT 

express  terms  by  the  son  that  the  plaintiff  would  forbear  to  sue 
the  father,  but  what  was  the  substance  of  the  transaction  contem- 
plated in  the  minds  of  the  parties?  Was  not  the  understanding 
obviously  that,  if  the  plaintiff  would  forbear  to  sue  the  father,  the 
defendant  would  become  liable  on  the  note?  I  take  it  to  be  un- 
doubted law  that  the  mere  fact  of  forbearance  would  not  be  a  con- 
sideration for  a  person's  becoming  surety  for  a  debt.  It  is  quite 
clear  on  the  other  hand  that  a  binding  promise  to  forbear  would  be 
a  good  consideration  for  a  guarantee.  The  question  is  whether,  if 
the  guarantor  requests  the  creditor  to  forbear  from  suing  and  the 
creditor  on  such  request,  although  he  does  not  at  the  time  bind  him- 
self to  forbear,  does  in  fact  afterward  forbear  to  sue,  there  is  a 
good  consideration  for  the  guarantee.  It  seems  to  me  that  it  was 
laid  down  in  Oldershaw  v.  King*  that  there  would  in  such  a  case 
be  a  good  consideration,  and  I  do  not  think  that  any  of  the  cases 
cited  to  us  is  really  to  the  contrary.  Earle,  J.,  there  said :  "Look- 
ing at  the  whole  letter  and  the  circumstances  under  which  it  was 
written,  and  considering  the  importance  of  further  advances,  I  come 
to  the  conclusion  that  the  consideration  contemplated  was  that  fur- 
ther advances  should  be  made  and  time  given  by  the  creditor  before 
he  would  press  for  payment  of  the  existing  debt.  Though  the  con- 
tract did  not  bind  the  creditor  to  make  further  advances  or  to  give 
time,  unless  he  chose  to  do  so,  it  is  clear  that,  if  he  did  make  the  ad- 
vances and  did  give  time,  that  which  was  contingent  at  the  time  when 
the  instrument  was  written  became  an  absolute  and  binding  contract." 
It  clearly  follows  from  what  he  there  says  that,  if  at  the  request 
of  the  guarantor  the  creditor  does  in  fact  forbear,  there  is  a  suffi- 
cient consideration  to  bind  the  guarantor,  who  has  promised  to  pay 

1  the  debt.  It  was  argued  that  the  request  to  forbear  must  be  ex- 
press. But  it  seems  to  me  that  the  question  whether  the  request 
is  express  or  is  to  be  inferred  from  the  circumstances  is  a  mere 
question  of  evidence.  If  a  request  is  to  be  implied  from  the  circum- 
stances, it  is  the  same  as  if  there  were  an  express  request.  The 
question  is,  therefore,  whether  there  was  sufficient  evidence  in  this 

,.  case  to  entitle  the  jury  toTnfer  that  the  understanding  between  the 
plaintiff  and  the  defendant  was  that,  if  the  plaintiff  would  give 
time  to  the  father,  the  defendant  would  make  himself  responsible. 
I  am  of  opinion  that/  there  was  evidence  to  go  to  the  jury  that  what 
the  parties  really  understand  in  their  minds  was  that,  if  the  plaintiff 
would  give  the  defendant's  father  time  to  turn  round,  the  defendant 
would  guarantee  the  payment  of  the  principal  in  the  end  and  in  the        | 

'  meantime  interest  at  the  rate  of  5  per  cent,  per  annum  half-yearly. 
I  not  only  think  that  there  was  evidence  of  such  an  understanding, 
but  I  entirely  agree  with  the  inference  drawn  by  the  jury.  I  can  not 
see  any  other  reasonable  explanation  of  the  transaction  than  that 

*2  H.  &  N.  399,  517. 


-  J/  J  1 

CONSIDERATION  41 

the  understanding  was  as  I  have  said.  For  these  reasons  I  think 
that  the  verdict  and  judgment  at  the  trial  were  right,  and  that  the 
decision  of  the  Divisional  Court  must  be  reversed. 

Lopes,  L.  J. :  In  this  case  the  question  is  whether  there  was  evi- 
dence of  a  consideration  for  the  making  of  this  note  by  the  defend- 
ant. Thejaw  appears  to  be  that  a  promise  to  forbear  is  a  good  con- 
sideration, but  also  That  actual  forbearance  at  the  request,  express 
or  implied,  of  the  defendant  would  be  a  good  consideration.  Tak- 
ing  the  latter  of  these  two  alternatives,  it  is  undisputed  that  there 
was  actual  forbearance  from  suing  in  this  case.  That  by  itself  would 
not  be  sufficient ;  such  forbearance  must  have  been  at  the  request, 
express  or  implied,  of  the  defendant.  There  is  no  evidence  here  of 
any  express  request.  It  seems,  however,  clear  that  there  is  evidence 
of  an  implied  request,  and  I  think  the  jury  were  justified  in  finding 
that  there  was  such  a  request.  Unless  it  were  to  procure  forbear- 
ance, it  is  inconceivable  why  the  defendant  should  have  signed  the 
note  at  all.  The  case  is  strengthened  when  it  is  borne  in  mind  that 
the  note  provides  for  the  payment  of  interest  half-yearly  by  the 
father  and  son  jointly,  thus  clearly  indicating  to  my  mind  that  for- 
bearance was  contemplated  at  the  request  of  the  son.  For  these 
reasons  I  think  the  judgment  of  the  court  below  should  be  reversed. 

Appeal  allowed.* 


BENJAMIN  B.  STRONG,  APPELLANT,  v.  LOUISA  A.  SHEF- 
FIELD, RESPONDENT  - 

144  N.  Y.  392,  39  N.  E.  330  (1895). 

this  was  an  action  upon  a  promissory  note. 

The  facts,  so  far  as  material,  are  stated  in  the  opinion. 
Andrews,  Ch.  J. :     The  contract  between  a  maker  or  indorser  of  '  JrH1* 
a  promissory  note  and  the  payee  forms  no  exception  to  the  general 
rule  that  a  promise,  not  supported  by  a  consideration,   is  nudum 
pactum.     The  law  governing  commercial  paper  which  precludes  an 
inquiry  into  the  consideration  as  against  bona  fide  holders  lor  value 
before  maturity,  has  no  application  where  the  suit  is  between  the 
original  parties  to  the  instrument.    It  is  undisputed  that  the  demand 
note  upon  which  the  action  was  brought  was  made  by  the  husband  . 
of  the  defendant  and  indorsed  by  her  at  his  request  and  delivered 
to  the  plaintiff,  the  payee,  as  security  for  an  antecedent  debt  owing 
by  the  husband  to  the  plaintiff.     The  debt  of  the  husband  was  past 
due  at  the  time,  and  the  only  consideration  for  the  wife's  indorse- 
ment, which  is  or  can  be  claimed,  is  that  as  part  of  the  transaction 
there  was  an  agreement  by  the  plaintiff  when  the  note  was  given  to 

*The  opinion  of  Lindley,  L.  J.,  is  omitted. 


42  THE    CONTRACT 

forbear  the  collection  of  the  debt,  or  a  request  for  forbearance, 
which  was  followed  by  forbearance,  for  a  period  of  about  two 
years  subsequent  to  the  giving  of  the  note.  There  is  no  doubt  that 
an  agreement  by  the  creditor  to  forbear  the  collection  of  a  debt  pres- 
ently due  is  a  good  consideration  for  an  absolute  or  conditional 
promise  of  a  third  person  to  pay  the  debt,  or  for  any  obligation  he 
may  assume  in  respect  thereto.  Nor  is  it  essential  that  the  credit- 
or should  bind  himself  at  the  time  to  forbear  collection  or  to  give 
time.  If  he  is  requested  by  his  debtor  to  extend  the  time,  and  a  third 
person  undertakes  in  consideration  of  forbearance  being  given  to_be- 
.  come  liable  as  surety  or  otherwise,  and  the  creditor  does  in  Jact 
forbear  in  reliance  upon  the  undertaking,  although  he  enters  into  no 
enf  orcible  agreement  to  do  so,  his  acquiescence  in  the  request,  and  an 
actual  forbearance  in  consequence  thereof  for  a  reasonable  time, 
furnishes  a  good  consideration  for  the  collateral  undertaking.^  In 
other  words,  a  request  followed  by  performance  is  sufficient,  and 
mutual  promises  at  the  time  are  not  essential,  unless  it  was  the  under- 
standing that  the  promisor  was  not  to  be  bound,  except  on  condition 
that  the  other  party  entered  into  an  immediate  and  reciprocal  ob- 
ligation to  do  the  thing  requested.  (Morton  v.  Burn,  7  A.  &  E.  19; 
Wilby  v.  Elgee,  L.  R.,  10  C.  P.  497 ;  King  v.  Upton,  4  Maine  387 ; 
Leake  on  Con.  p.  54;  Am.  Lead.  Cas.  vol.  a,  p.  96  et  seq.  and  cases 
cited.)  The  general  rule  is  clearly,  and  in  the  main  accurately, 
stated  in  the  note  to  Forth  v.  Stanton  (1  Saund.  note  6).  The 
learned  reporter  says :  "And  in  all  cases  of  forbearance  to  sue,  such 
forbearance  must  be  either  absolute  or  for  a  definite  time,  or  for  a 
reasonable  time ;  forbearance  for  a  little,  or  for  some  time,  is  not 
sufficient."  The  only  qualification  to  be  made  is  that  in  the  absence 
of  a  specified  time  a  reasonable  time  is  held  to  be  intended.  (Old- 
ershaw  v.  King,  2  H.  &  N.  517;  Calkins  v.  Chandler,  36  Mich.  320.) 
The  note  in  question  did  not  in  law  extend  the  payment  of  the  debt. 
It  was  payable  on  demand,  and  although  being  payable  with  interest 
it  was  in  form  consistent  with  an  intention  that  payment  should  not 
be  immediately  demanded,  yet  there  was  nothing  on  its  face  to  pre- 
vent an  immediate  suit  on  the  note  against  the  maker  or  to  recover 
the  original  debt.  (Merritt  v.  Todd,  23  N.  Y.  28;  Shutts  v.  Fingar, 
100  id.  539.) 

In  the  present  case  the  agreement  made  is  not  left  to  inference, 
nor  was  it  a  case  of  request  to  forbear,  followed  by  forbearance,  in 
pursuance  of  the  request,  without  any  promise  on  the  part  of  the 
creditor  at  the  time.  The  plaintiff  testified  that  there  was  an  ex- 
press agreement  on  his  part  to  the  effect  that  he  would  not  pay  the 
note  away,  nor  put  it  in  any  bank  for  collection,  but  (using  the  words 
of  the  plaintiff)  "I  will  hold  it  until  such  time  as  I  want  my  money, 
I  will  make  a  demand  on  you  for  it."  And  again :  "No,  I  will  keep 
it  until  such  time  as  I  want  it."  Upon  this  alleged  agreement  the  de- 
fendant indorsed  the  note.     It  would  have  been  no  violation  of  the 


CONSIDERATION  43 

plaintiff's  promise  if,  immediately  on  receiving  the  note,  he  had  com- 
menced suit  upon  it.  Such  a  suit  would  have  been  an  assertion  that 
he  wanted  the  money  and  would  have  fulfilled  the  condition  of  for- 
bearance. The  debtor  and  the  defendant,  when  they  became  parties 
to  the  note,  may  have  had  the  hope  or  expectation  that  forbearance 
would  follow,  and  there  was  forbearance  in  fact.  But  there  was  no 
agreement  to  forbear  for  a  fixed  time  or  for  a  reasonable  time,  but 
an  agreement  to  forbear  for  such  time  as  the  plaintiff  should  elect. 
The  consideration  is  to  be  tested  by  the  agreement,  and  not  by  what, 
was  done  under  it.  /it  was  a  case  of  mutual  promises,  and  so  in- 
tended. We  think  the  evidence  failed  to  disclose  any  consideration 
for  the  defendant's  indorsement,  and  that  the  trial  court  erred  in 
refusing  so  to  rule. 

The  order  of  the  general  term  reversing  the  judgment  should  be 
affirmed,  and  judgment  absolute  directed  for  the  defendant  on  the 
stipulation,  with  costs  in  all  courts. 

All  concur,  except  Gray  and  Bartlett,  J.  J.,  not  voting,  and  Haight, 
J.,  not  sitting. 

Ordered  accordingly. 


WILLIAM  MECORNEY  v.  DOUGLAS  N.  STANLEY- 
62  Mass.  85  (1851). 


This  was  an  action  of  assumpsit  on  a  promissory  note,  bearing 
date  the  20th  of  December,  1848,  payable  to  the  plaintiff  or  order 
on  demand,  subscribed  by  John  E.  Stanley ;  and  on  which  the  de- 
fendant's name  was  indorsed  in  blank.    The  trial  was  before  Hoar,  ■ 
J.,  in  the  court  of  common  pleas. 

The  declaration  contained  four  special  counts ;  in  the  first  of 
which  the  defendant  was  sought  to  be  charged  as  an  original  prom- 
isor ;  and  in  the  others  as  a  guarantor.  The  consideration  alleged  in 
the  three  last  counts  was  a  forbearance  to  sue  John  E.  Stanley. 

It  was  in  evidence  for  the  plaintiff,  that  the  defendant,  on  the 
19th  of  February,  1849,  paid  a  part  of  the  note;  that  at  the  time  oi 
making  the  payment  he  said  that  he  had  signed  a  note  for  his  brother 
John  E.  Stanley ;  that  he  had  become  surety  for  his  brother  to  the 
plaintiff,  who  furnished  him  with  goods  and  thereby  helped  him ; 
that  he,  the  defendant,  was  secured,  and  held  a  bill  of  sale  or  a 
mortgage  of  the  goods  and  effects  of  John  E.  Stanley  to  secure  him; 
and  that  the  plaintiff  was  pressing  him  for  payment. 

The  defendant  then  introduced  evidence  tending  to  show,  that  he 
did  not  put  his  name  on  the  note  until  the  14th  of  February,  1849. 
The  defendant  also  put  in  evidence  the  deposition  of  Horace  Me- 
corney,  who  testified,  that,  in  the  latter  part  of  February,  or  the 
early  part  of  March,  1849,  the  plaintiff  called  on  John  E.  Stanley 


44  THE    CONTRACT 

to  pay  or  secure  a  note  which  the  plaintiff  held  against  him;  that 
John  replied,  that  he  would  try  to  get  his  brother  Douglas,  who  was 
in  the  next  room,  to  sign  with  him,  and  asked  the  plaintiff  if  he 
would ;  that  John  then  went  into  the  room  where  his  brother  was, 
and  both  came  together,  immediately,  into  the  room  where  the  wit- 
ness and  the  plaintiff  were  ;  that  the  defendant  then  said  to  the  plain- 
tiff, that  if  he  would  not  ask  him  for  payment  nor  call  on  him  for 
it  in  less  than  six  months,  he  would  sign  with  his  brother ;  that  the 
plaintiff  then  said  he  would  not,  and  they  made  a  writing  to  that 
effect,  which  the  plaintiff  signed ;  and  that  thereupon  the  defendant 
indorsed  his  name  on  the  note. 

The  plaintiff,  upon  these  facts,  insisted,  that  the  defendant  was 
liable  on  the  first  count  in  the  declaration,  if  not  on  the  others.  But 
the  judge  ruled  and  instructed  the  jury,  that  if  the  defendant  did  not 
put  his  name  on  the  note  at  the  time  it  was  given,  but  at  the  time 
and  in  the  manner  stated  in  the  deposition  of  Horace  Mecorney,  he 
was  not  liable  on  the  first  count ;  and  that  to  sustain  the  three  last 
counts,  it  was  not  sufficient  for  the  plaintiff  to  prove  a  forbearance 
to  sue  John  E.  Stanley;  but  that  he  must  prove  an  agreement, 
binding  upon  the  plaintiff,  to  forbear  to  sue  John  E.  Stanley ;  that  an 
agreement  not  to  sue  the  defendant  would  not  be  sufficient ;  and  that 
there  seemed  to  be  no  sufficient  evidence  in  the  case,  from  which  the 


jury  could  infer  an  agreement  to  forbear  to  sue  John  E.  Stanley, 
leaving  that  question,  however,  to  the  decision  of  the  jury. 

The  jury  returned  a  verdict  for  the  defendant,  whereupon  the 
plaintiff  alleged  exceptions. 

Bigelow,  J. :  It  is  very  clear  that  the  plaintiff  could  not  recover 
against  the  defendant  on  the  first  count  charging  him  as  an  original 
promisor,  because  the  evidence  proved  that  the  defendant's  name 
was  not  put  on  the  back  of  the  note  until  several  weeks  after  the 
note  was  given.  Union  Bank  of  Weymouth  and  Braintree  v.  Wil- 
lis, 8  Met.  504;  Benthall  v.  Judkins,  13  Met.  265. 

As  the  defendant  did  not  partake  in  the  original  consideration  of 
the  note  by  becoming  a  party  to  it,  at  its  inception,  the  plaintiff  was 
bound  to  show  a  valid  consideration  for  the  undertaking  of  the  de- 
fendant. For  this  purpose  he  relied  on  his  last  three  counts,  and 
offered  evidence  tending  to  show  a  forbearance  to  sue  John  E.  Stan- 
ley, the  original  promisor.  But  it  did  not  appear  that  there  was 
any  agreement  to  give  time  to  the  original  promisor.  On  the  con- 
trary, his  liability  to  pay  the  note  on  demand  remained  unchanged. 
The  only  consideration  therefore  for  the  defendant's  promise  was 
the  pre-existing  debt  of  John  E.  Stanley,  with  which  the  defendant 
had  no  concern.  But  a  mere  forbearance  to  sue,  without  any  prom 
ise  or  agreement  to  that  effect  by  the  holder  of  a  note,  formsjio 
sufficient  consideration  for  a  guaranty.  It  is  a  mere  omission  o 
the  part  of  the  creditor  to  exercise  his  legal  right,  to  which  he  is 
not  bound  by  any  promise,  and  which  right  he  may  at  any  moment 


CONSIDERATION  45 

and  at  his  own  pleasure  enforce.    There  being  in  this  case  no  agree- 


ment  to  forbear  to  sue,  the  creditor  was  not  hindered  or  delayed.  ' 
He_cquld  have  brought  his  suit  against  the  promisor  at  any  time, 
so  that  he  sustained  no  injury  or  inconvenience  sufficient  to  con- 
stitute^a  consideration  for  the  promise ;  and,  on  the  other  hand,  the 

4  original  debtor  received  no  benefit  or  advantage  whatever,  because 
he  was  liable  to  be  sued  at  any  moment,  and  so  the  consideration 
fails_as_to^him.  There  was  no  damage  to  the  creditor  or  benefit  to 
the  debtor  upon  which  the  consideration  of  a  promise  can  rest.  It 
is  not  therefore  true,  as  a  proposition  of  law,  that  forbearance  to 
sue  a  third  person  is,  of  itself,  a  sufficient  consideration  for  a  prom- 
ise; and  the  court  would  have  erred,  if  they  had  complied  with  the 
plaintiff's  request,  and  given  any  such  instruction  to  the  jury.  To 
constitute  a  forbearance  to  sue  a  third  person  a  good  consideration,  • 
it  must  have  been  pursuance  of  an  agreement  to  forbear.  In  such 
a  case,  the  injury  to  the  promisee  and  the  benefit  to  the  debtor  both  i^r 
concur  in  making  the  consideration  valid.  It  is  undoubtedly  true, 
that  an  actual  forbearance  to  sue  may  often,  in  connection  with  other 
facts,  be  evidence  of  an  agreement  to  forbear,  and,  as  such,  form  a 
good  consideration  for  a  promise.  Walker  v.  Sherman,  11  Met. 
170;  Breed  v.  Hilhouse,  7  Conn.  523.  But  this  is  a  very  different 
proposition  from  that  contended  by  the  plaintiff,  that  forbearance 
of  itself,  without  any  promise,  is  a  good  consideration.  Byles  on 
Bills,  90,  note;  Crofts  v.  Beale,  11  C.  B.  172.  *  *  * 
Exceptions  overruled. 


McCANNA  &  FRASER  CO.  v.  CITIZENS'  TRUST  &  SURETY 
CO.  OF  PHILADELPHIA- 

76  Fed.  420,  35  L.  R.  A.  236  (1896). 

Before  Dallas,  Circuit  Judge,  and  Butler  and  Wales,  District 
Judges. 

Butler,  District  Judge:  The  suit  is  on  a  surety  bond  given  by 
the  defendant  to  the  plaintiff — the  latter  being  a  corporation  of  Wis- 
consin. The  bond  recites  that  the  plaintiff  has  appointed  S.  Ridg- 
way  Kennedy  its  manager,  and  that  he  is  to  enter  into  its  service  ac- 
cordingly in  Philadelphia,  and  then  stipulates  that  the  defendant 
will  reimburse  the  plaintiff  to  the  extent  of  $7,000  for  such  pecuni- 
ary loss,  if  any,  as  may  be  sustained  by  said  employer  by  reason  of 
the  dishonesty  of  the  employe,  amounting  to  embezzlement  or  lar- 
ceny, in  connection  with  his  duty  as  manager  of  the  plaintiff's  busi- 
ness. 

An  act  of  assembly  of  the  commonwealth  of  Pennsylvania,  ap- 
proved April  22,  1874,  requires  every  foreign  corporation  under- 
taking to  do  business  in  the  state  of  Pennsylvania  to  establish  an  ' 


46  THE    CONTRACT 

office  here,  and  to  appoint  an  agent  for  the  transaction  of  business  ; 
and  the  second  section,  declares  that  it  shall  not  be  lawful  for  any 
such  corporation  to  *do  any  business  in  this  commonwealth  until 
^it  shall  have  filed  in  the  office  of  the  secretary  of  this  commonwealth 
a  statement  under  the  seal  of  the  corporation  and  signed  by  the 
president  and  secretary  thereof  showing  the  title  and  object  of  the 
corporation,  the  location  of  its  office  or  offices,  and  the  name  or 
names  of  its  agent  or  agents,  etc. 

The  third  section  declares  that  any  person  or  persons,  agent  or 
agents,  officer  or  employe  of  such  foreign  corporation  who  shall 
transact  any  business  in  this  commonwealth  without  compliance  with 
the  provisions  of  the  act  shall  be  guilty  of  a  misdemeanor,  and  on 
conviction  thereof  shall  be  punished  by  imprisonment,  etc. 

The  plaintiff  did  not  comply  with  the  second  section,  and  conse- 
quently its  business  transacted  here  was  unlawful.  The  construction 
and  effect  of  the  statute  have  several  times  been  considered  by  the 
Supreme  Court  of  the  state  (whose  decisions  in  this  regard  are  bind- 
ing on  us)  and  that  court  has  held  that  the  transaction  of  business 
in  Pennsylvania  by  a  foreign  corporation,  under  such  circumstances, 
and  all  contracts  pertaining  to  it,  are  unlawful.  In  Lasher  vTStim- 
son,  145  Pa.  St.  30,  it  is  said:  "These  terms  are  not  onerous,  or  in 
conflict  with  any  constitutional  provision  or  rule  of  public  policy. 
But  they  are  clearly  prohibitory,  and  they  indelibly  stamp  as  un- 
lawful any  business  transaction  within  the  state,  by  a  foreign  corpo- 
ration which  has  not  complied  with  them.  It  is  only  by  its  observ- 
ance of  them  that  it  can  have  a  legal  existence  for  business  purposes 
within  this  jurisdiction,  or  aquire  contractual  rights  which  our  courts 
will  recognize.    Thorne  v.  Insurance  Co.,  80  Pa.  St.  15." 

It  will  be  observed  that  the  court  in  its  construction  adopts  the 
principles  of  the  case  of  Thorne  v.  Insurance  Co.,  in  which  it  was 
held  that,  when  a  foreign  insurance  company  has  not  complied  with 
the  act  under  which  alone  it  is  authorized  to  transact  business  in 
Pennsylvania,  there  can  be  no  recovery  by  the  company  upon  a  bond 
given  by  its  agent,  with  sureties,  conditioned  for  paying  over  moneys 
of  the  company  received  by  him.  Johnson  v.  Hulings,  103  Pa.  St. 
498,  is  to  the  same  effect.  Thus,  it  results  that  the  bond  in  suit  must 
be  regarded  as  taken  to  protect  the  plaintiff  while  engaged  in  prose- 
•  cuting  its  business  in  violation  of  law..  It  is  substantially  a  contract 
to  protect  the  plaintiff  against  loss  while  engaged  in  violating  the 
law.  It  requires  no  argument  to  demonstrate  that  such  a  contract  is 
invalid.  The  point  made  by  the  plaintiff's  counsel,  that  inasmuch 
as  the  appointment  of  the  agent  was  lawful  the  bond  taken  as  se- 
curity for  his  conduct  is  not  liable  to  the  objection  urged,  is  ingeni- 
ous, but  is  not  sound.  The  conduct  contemplated  relates  to  his 
prosecution  of  the  unlawful  business  stated.  It  is  true  that  the  de- 
fendant may  not  have  known  or  supposed  that  the  business  would 
be  undertaken  without  compliance  with  the  statute.   It  is  immaterial, 


//, 


INCOMPLETED    CONTRACTS  47 

however,  what  the  defendant's  understanding  was  in  this  respect. 
It  must  be  inferred  that  the  plaintiff  contemplated  a  disregard  of 
thTeTaw  from  the  beginning;  inasmuch  as  he  subsequently  violated 
it.  In  any  view  that  can  be  taken  of  the  subject  the  fact  remains 
that  [the  plaintiff  is  seeking  to  enforce  a  contract  entered  into  for 
the  purpose  of  securing  it  in  conducting  a  business  forbidden  by  law  ; 
and  such  a  contract  is  necessarily  void. 
The  judgment  is  affirmed  with  costs. 

Accord:  Rouse  v.  Mohr,  29  111.  App.  321  (note  given  to  compound  a  fel- 
ony) ;  Leckie  v.  Scott,  10  La.  412  (note  given  for  gambling  debt)  ;  Hook  v. 
White,  201  Pa.  41,  SO  Atl.  290  (in  fraud  of  creditors). 

See  also  Ramsey  v.  Whitbeck,  183  111.  550,  56  N.  E.  322 ;  Board  of  Educa- 
tion v.  Thompson,  33  Ohio  St.  321;  Serrill  v.  Wilder,  77  Ohio  St.  343,  83  X. 
E.  486. 


SECTION  4.    INCOMPLETED  CONTRACTS  OF 
SURETYSHIP 

JAMES    NEIL,    PLAINTIFF    IN    ERROR,   v.    RICHARD    P. 
MORGAN,  SIDNEY  S.  MORGAN  AND  PETER  W. 
PECKHAM,  DEFENDANTS  IN  ERROR  a- 

28///.  524  (1862). 

This  was  an  action  of  debt,  commenced  in  the  Circuit  Court  of 
Peoria  county,  upon  a'baiLBond,  which  said  bond  is  as  follows : 

"Know  all  Men  by  these  Presents,  that  we,  Richard  P.  Morgan, 
of  the  county  of  Cook  and  State  of  Illinois,  are  held  and  firmly 
bound  unto  John  L.  Wilson,  sheriff  of  Cook  county,  in  the  state  of 
Illinois,  in  the  sum  of  four  thousand  dollars,  lawful  money  of  the 
United  States,  for  the  payment  of  which,  well  and  truly  to  be  made, 
to  the  said  John  L.  Wilson,  sheriff  as  aforesaid,  or  his  successors  in 
office,  executors,  administrators  or  assigns,  \ye  hereby. Jointly  and 
severally  bind  ourselves,  our  heirs,  executors  and  administrators. 
Witness  our  hands  and  seals,  this  17th  day  of  April,  eighteen  hun- 
dred and  fifty-seven. 

"The  condition  of  this  bond  is  such,  that  whereas  James  Neiljias 
lately  suejl  out  of  the  Circuit  Court  of  Peoria  county  a  certain  writ 
of  capias  ad  respondendum,  in  a  certain  plea  of  trespass  on  the  case 
on  promises,  against  Richard  P.  Morgan,  returnable  to  the  next 
term  of  the  said  court,  to  be  held  at  Peoria,  in  Peoria  county,  on 
the  second  Monday  of  May  next. 

"Now,  if  the  said  Richard  P.  Morgan  shall  be  and  appear  at  the 
said  court,  to  be  held  at  Peoria  aforesaid,  on  the  second  Monday  of 
May  next ;  and  in  case  the  said  *  *  *  shall  not  be  received 
as  bail  in  the  said  action,  shall  put  in  good  and  sufficient  bail,  which 


48  THE    CONTRACT  /  , 

shall  be  received  by  the  plaintiff,  or  shall  be  adjudged  sufficient  by 
the  court;  or  the  said  *  *  *  being  accepted  as  bail,  shall 
pay  and  satisfy  the  costs  and  condemnation  money  which  may  be 
rendered  against  the  said  Richard  P.  Morgan  in  the  plea  aforesaid, 
or  surrender  the  body  of  the  said  Richard  P.  Morgan  in  execution  in 
case  the  said  Richard  P.  Morgan  shall  not  pay  and  satisfy  the  said 
costs  and  condemnation  money  or  surrender  himself  in  execution 
where  by  law  such  surrender  is  required,  then  this  obligation  to  be 
void,  otherwise  to  remain  in  full  force  and  effect. 

"Richard  P.  Morgan, 
"S.  S.  Morgan, 
"P.  W.  Peckham. 

"Filed  Nov.  8,  1858.    Enoch  P.  Sloan,  Clerk." 

The  declaration  in  the  cause  was  upon  this  bond. 

The  defendants  craved  Qy^r  of  the  bond,  and  demurred  to  the 
declaration.  The  court  sustained  the  demurrer,  and  the  plaintiff 
abiding  by  his  declaration,  the  court  rendered  judgment  for  the  de- 
fendants. 

"Walker,  J. :  It  will  not  be  controverted,  that  at  common  law,  an 
obligation,  signed  and  sealed  by  other  persons  than  those  named  in 
the  body  or  condition  of  the  instrument,  will  bind  all  to  its  terms 
"•  and  conditions.  If  this  was  such  a  bond,  there  would  be  no  ques- 
!  tion  of  its  validity,  and  that  all  who  had  executed  it  will  be  bound 
for  its  performance.  It  is,  however,  insisted,  that  as  this  is  a  statu-" 
tory  bond,  that  the  omission  to  insert  the  names  of  Sidney  S.  Mor- 
gan and  Peter  W.  Peckham,  either  in  its  body,  or  in  the  condition, 
as  to  them,  it  is  unauthorized  and  void.  If  this  constitutes  a  mate- 
rial omission  of  the  requirements  of  the  statute,  then  such  must  be 
the  effect,  but  if,  on  the  contrary,  the  provision  is  only  directory,  its 
omission  will  not  affect  its  validity.  By  a  reference  to  English  cases, 
it  will  be  found  that  a  bail  bond  which  conforms  substantially  to 
their  statute,  is  held  to  be  sufficient,  although  there  may  be  tech- 
nical defects.  2  Levinz  123;  6  Mod.  122;  6  T.  R.  702;  2  Strange 
104;  9  East  55. 

In  the  case  of  Reynolds  v.  Gore,  4  Leigh  276,  it  was  held  that 
where  by  mistake  the  name  of  the  security  is  omitted  in  the  body  of 
the  bond,  but  a  blank  was  left  where  it  should  have  been  inserted, 
that  the  bail  was  nevertheless  liable.  This  case  is  almost  in  point, 
and  establishes,  like  the  English  decisions,  the  doctrine  that  a  sub- 
stantial compliance  with  the  statute  will  suffice.  The  case  of  Adams 
v.  Hedgepeth,  5  Jones'  N.  Car.  Law  Rep.  327,  announces  a  different 
rule,  yet  the  court  in  their  opinion  say,  that  they  had  previously  held 
that  such  an  omission  in  an  administrator's  bond,  was  immaterial. 
The  court  assigns  no  reason  for  the  distinction  in  the  two  cases, 
nor  is  any  perceived.  They  are  both  statutory  obligations,  and  de- 
pend upon  the  statute  for  their  validity. 


INCOMPLETED    CONTRACTS  49 

In  this  case  the  securities  must  have  known  that  they  were  exe- 
cuting a  bail  bond,  not  as  principals,  but  as  securities,  as  they  were 
not  sued  or  arrested,  and  the  instrument  recited  that  the  principals 
rTacTbeen.  They^also  knew  that  the  object  of  the  bond  was  to  pro- 
cure the  release  of  the  principal  from  custody.  I  This  they  no  doubt 
inFendeTl  to  do,  and  when  they  read  the  bond  and  condition,  and  exe- 
cuted it,  they  must  have  intended  to  become  liable  if  the  condition  of 
the  bond  was  not  performed.  By  executing  the  bond  they  obtained 
the  release  of  the  principal,  and  the  plaintiff  in  the  original  action 
no  doubt  relied  upon  it  as  good  and  sufficient.  In  the_administration 
of  justice,  mere  technicalities,  unless  positively  required  by  the  law* 
should  not  be  regarded,  especially  when  they  stifle  justice,  defeat 
theTntention  of  the  parties,  and  tend  to  no  beneficial  end.  We  re- 
gard this  bail  bond  a  substantial  compliance  with  our  statute,  sup- 
ported by  authority,  and  iFmust  therefore  be  held  valid  and  binding. 
~TEe judgment  of  the  court  below  must  be  reversed,  and  the  cause" 
remanded. 

Judgment  reversed. 

Accord :  Howell  v.  Parsons,  89  N.  Car.  230 ;  Potter  v.  State,  23  Ind.  550 ; 
Pequawkett  Bridge  v.  Mathes,  7  N.  H.  230,  26  Am.  Dec.  737 ;  Danker  v.  At- 
wood,  119  Mass..  146;  McLain  v.  Simington,  37  Ohio  St.  484. 


n 


INHABITANTS  OF  SOUTH  BERWICK  v.  WILLIAM  HUNT- 
RESS ET  AL.  «- 

53  Maine  89,  87  Am.  Dec.  535  (1864). 

DebLon  a  collector's  bond.    Plea  non  est  factum. 

The  main  facts  sufficiently  appear  in  the  opinion. 

The  verdict  was  for  the  defendants  and  the  plaintiffs  excepted. 

Kent,  J. :  The  exceptions  present  a  single  question  for  our  deter- 
mination. The  counsel  for  the  plaintiffs  requested  this  instruction, 
which  the  facts  of  the  case  made  pertinent  and  applicable,  "that  a 
h  party  executing  a  bond,  knowing  that  there  are  blanks  in  it  to  be 
filled  up,  necessary  to  make  it  a  perfect  instrument,  must  be  consid- 
'  ered  as  agreeing  that  the  blanks  may  be  thus  filled  after  he  has  exe- 
cuted the  bond."  The  presiding  judge,  in  his  instructions,  assented  to 
this  as  correct,  when  limited  "to  such  matters  appearing  on  the  face 
of  the  instrument  to  be  certain,  such  as  the  names  of  the  sureties, 
who  had  signed,  but  that  this  rule  would  not  apply  to  the  penal  sum 
in  the  bond ;  that  being  uncertain  in  its  amount."  He  further  in- 
structed the  jury,  in  substance,  that  they  must  be  satisfied,  from  all 
the  evidence,  that  Huntress  was  authorized  by  the  defendants  to  in- 
sert the  penal  sum;  and,  if  not  so  proved,  that  the  insertion  would  be 
4 — De  Witt. 


50 


THE   CONTRACT 


y  ; 


a  material  alteration,  and  render  the  bond  "invalid."  The  jury  must 
have  understood  that  something  more  than  the  facts  assumed  in  the 
request  must  be  established  by  proof. 

It  seems  to  be  now  well  settled  that  where  a  party  executes  a 
deed,  or  bond,  or  other  instrument,  and  delivers  the  same  to  another, 
in  an  imperfect,  state,  and  gives  authority  to  that  person  to  fill  up  the 
blanks,  and  thus  perfect  the  instrument — and  he  does  so — its  valid- 
ity can  not  be  controverted.  This  authority  may  be  by  parol.  It 
may  be  implied  from  the  facts  proved,  when  those  facts,  fairly  con- 
sidered, justify  the  inference.  When  the  authority  is  established, 
either  by  evidence  of  express  authority,  or  by  implication,  the  power 
will  extend  as  far  as  such  express  or  implied  authority  is  given. 
The  law  on  this  subject  has  recently  been  stated  by  the  Supreme 
Court  of  the  United  States,  in  Drury  v.  Foster,  2  Wall.  (U.  S.)  24. 

There  is  a  class  of  cases  where  it  is  held  that  it  is  not  a  material 
alteration  to  insert  a  word  or  words  that  the  law  would  itself  supply, 
as  the  word  "hundred"  before  "pounds,"  where  the  condition  of  the 
bond  first  stated  that  the  full  sum  of  one  hundred  pounds  shall  be 
paid  by  instalments  specified,  and  then  added  the  words  "until  the 

sum  of  one  pounds  shall  be  paid."     The  court  held  that  it 

was  plain,  what  the  meaning  of  the  parties  was,  and  what  the  party 
signing  intended  to  be  bound  for.    Waugh  v.  Bussel,  5  Taunton  707. 

In  the  case  of  Hunt  v.  Adams,  6  Mass.  519,  the  same  rule  was 
applied  to  the  case  where  the  word  "year"  had  been  inserted  before 
the  words  "of  our  Lord."  In  this  case,  C.  J.  Parsons  discusses  some- 
what the  general  doctrine,  and  says  that  the  consent  of  the  obligor 
may  as  well  be  implied  from  the  nature  of  the  alteration,  as  when 
expressed.  He  cites  several  cases,  where,  without  any  evidence  of 
assent  beyond  the  instrument  itself,  alterations  had  been  made  by 
filling  blanks.  To  the  same  point  is  the  case  of  Brown  v.  Pinkham, 
18  Pick.  172. 

In  the  case  at  bar  the  requested  instruction  assumed  that  there 

f>ras  no  direct  evidence  of  authority  to  fill  the  blanks  beyond  the 
act  that  the  party  executed  the  bond,  knowing  that  there  were 
blanks  to  be  filled  up.  The  question,  then,  is  one  as  to  the  implied 
authority  of  the  person,  for  whose  use  the  bond  was  made,  to  fill  any 
or  all  the  blanks,  before  delivering  the  bond  to  the  town. 

It  may  be  likened  to  a  case  of  an  accommodation  note,  indorsed 
when  imperfect,  and  left  with  the  maker,  for  whose  use  it  was 
made,  to  be  negotiated  by  him.  In  numerous  cases  of  this  kind  it  has 
been  held  that  an  indorsement  on  a  paper  without  sum,  or  date,  or 
time  of  payment  will  hold  the  indorser  for  any  sum,  payable  at  any 
time  which  the  person  to  whom  the  indorser  entrusts  it  chooses  to 
insert.  Violett  v.  Patten,  5  Cranch  142 ;  Russel  v.  Longstaff,  Dougl. 
514.  Or,  where  the  name  of  the  payee  is  left  blank.  Crachly  v. 
Clarence,  2  M.  &  S.  90.  Or,  where  indorsements  on  blank  pieces  of 
paper  were  left  with  a  clerk,  the  party  indorsing  expecting  and  in- 


> 


A 

INCOM-PLZTED    CONTRACTS 


tending  that  promissory  notes  would  be  written  on  them.     Putnam 
v.  Sullivan,  4  Mass.  45. 

Where  the  indorsers  commit  a  promissory  note  to  the  maker, 
with  a  blank  for  the  date,  they  authorize  him  to  fill  it  up  with  what 
date  he  pleases,  even  a  date  prior  to  the  day  of  the  actual  making 
of  the  note,  which  was  payable  in  sixty  days  from  date.  Mitchel  v. 
Culver,  7  Cowen  336.  So,  if  the  sum  be  left  in  blank,  it  may  be 
filled  up.    M.  &  F.  Bank  v.  Schuyler,  7  Cowen  337,  in  note. 

Where  it  appears  that  the  parties  intended  that  the  note  should 
be  for  $800,  and  it  read,  pay  "eight,"  with  a  blank  space,  the  maker, 
without  the  assent  of  the  indorser,  may  insert  the  words  "hundred 
dollars,"  and  the  indorser  will  be  holden.  Boyd  v.  Brotherson,  10 
Wendell  93.  £^*-^c 

Where  a  party  intended  to  give  a  note  for  the  amount  of  a  debt, 
which  amount  he  minuted  in  figures  on  the  margin,  but  wrote  the 
note  for  $300  instead  of  $334  (the  sum  on  margin),  it  was  held  that 
the  creditor  may,  without  express  authority,  insert  the  words  and 
sum  omitted.   Clute  v.  Small,  17  Wendell  238. 

In  each  of  these  cases  the  decision  seems  to  rest  upon  the  fact  that 
the  filling  up,  or  insertions,  were  in  accordance  with  the  intention 
of  the  parties,  and  to  carry  out  and  fix  the  liabilities  actually  agreed 
upon  or  assented  to. 

There  are  numerous  cases,  analogous  in  principle  to  the  one  be- 
fore us.  They  are  cases  where  the  court  has,  in  effect,  made  the  in- 
sertions itself  to  carry  out  the  obvious  intentions  of  the  parties.  In 
all  such  cases  it  is  fair  to  infer  that  if  they  had  been  made  by  a 
party  they  would  have  been  sanctioned  by  the  court.  The  court,  in 
this  matter,  would  seem  to  have  no  greater  legal  right  than  an  in- 
dividual. 

Thus,  in  the  case  of  Coles  v.  Hulme,  8  B.  &  C.  568  (15  E.  C.  L. 
299),  where  the  penal  sum  was  stated  as  7,700,  it  was  held  that  the 
word  "pounds"  must  be  inserted  by  the  court. 

Green  v.  Walker,  37  Maine  27,  where  a  replevin  bond  bound  the 
plaintiff  to  pay  to  himself  costs,  damages,  etc.,  is  was  held  that  it 
should  be  read  as  if  defendant's  name  was  inserted  in  place  of  plain- 
tiff's. In  this  case  will  be  found  citations  of  numerous  authorities 
on  this  subject.    Coolbroth  v.  Purrington,  29  Maine  469. 

It  may,  perhaps,  be  doubtful,  whether  some  of  these  cases  do  not 
go  beyond  the  true  limit;  particularly  the  one  cited  from  17  Wen- 
dell, where  the  party  was  allowed  to  insert  an  additional  sum  into 
the 'body  of  a  note  which  was  a  perfect  instrument  before.  The 
amendment  and  interlineation  would  seem  to  make  a  new  contract 
and  to  vary  and  alter  essentially  the  one  written  and  signed,  without 
the  assent  of  the  maker,  on  the  single  ground  that,  by  evidence 
aliunde,  it  appeared  probable,  or  reasonably  certain,  that  the  party 
intended  to  give  a  note  for  the  larger  sum  inserted  afterward.  _ 
There  seems  to  be  a  manifest  distinction  between  the  addition  of 


- 


THE    CONTRACT 


new  words,  or  the  erasure  of  words  and  the  substitution  of  others, 
changing  the  liability,  in  an  instrument  perfect  when  signed,  and  the 
insertion  of  words  to  fill  up  blanks,  which  the  party  signing  knew 
must  be  filled  up  to  make  the  bond  or  contract  perfect  in  form  or 
substance.  In  the  one  case  it  is,  in  effect,  making  a  new  contract ;  in 
the  other  it  is  but  finishing  and  making  perfect  the  contract  agreed 
upon. 

The  law  on  this  subject  in  Massachusetts,  before  the  separation, 
is  stated  by  C.  J.  Parsons,  in  Smith  v.  Crooker,  5  Mass.  538.  That 
was  a  case  on  a  collector's  bond,  in  which,  after  the  surety  had 
signed,  a  blank  had  been  filled.  The  judge,  after  stating  the  general 
principle,  that  it  would  not  be  an  alteration  which  would  avoid  the 
bond,  to  fill  up  blank  spaces  left,  if  the  party  executing  the  bond 
agrees  that  it  may  be  afterward  filled  up,  says :  "And  the  party  exe- 
cuting the  bond,  knowing  that  there  are  blanks  in  it  to  be  filled  up 
by  inserting  particular  names  or  things,  must  be  considered  as  agree- 
i  ing  that  the  blanks  may  be  thus  filled,  after  he  has  executed  the 
bond."  This  decision  is  cited  and  accepted  by  the  counsel  on  both 
sides  as  the  rule  to  be  applied  to  the  case  at  bar. 

It  was  adopted  by  the  presiding  judge,  but  he  ruled  that  the  filling 
of  the  blank  space,  left  for  the  insertion  of  the  penal  sum,  did  not 
come  within  the  rule.  The  correctness  of  that  ruling  is  the  question 
now  presented  by  the  exceptions. 

It  is  evident  that  the  implied  authority  is  limited,  but  it  clearly 
may  extend  beyond  mere  matters  of  form,  or  the  mere  insertions 
of  words,  which  the  law  itself  would  supply.  It  may,  as  it  has  been 
shown,  extend  to  those  matters  which  are  required  to  make  it  a 
binding  and  perfect  instrument. 

We  think  that  when  a  party  signs  a  bond  and  delivers  it  to  an- 
other, not  stipulating  or  expecting  that  the  paper  will  be  returned 
or  afterward  exhibited  to  him,  but  be  delivered  to  the  obligee  when 
perfected,  and,  when  he  so  delivers  it  there  are  blanks  in  it  to  be 
filled  up,  before  it  can  be  perfected,  and  he'  knows  the  fact,  those 
blanks  may  be  filled  up,  without  any  further  knowledge  or  assent 
on  his  part,  provided  that  the  insertions  thus  made  do  not  change 
the  relations  of  the  parties,  or  alter,  or  vary  the  actual  agreement 
made,  or  create  any  new  liability,  or  enlarge  any  responsibility  em- 
braced in  the  contract  between  the  parties,  but  only  make  perfect  in 
writing  what  was  actually  agreed  upon.  It  can  not  be  controverted 
when  thus  completed.  In  the  case  at  bar  the  whole  contract  or 
agreement  is  manifest  from  the  condition,  which  was  a  part  of  the 
bond  when  signed.  How  far  the  rule  may  apply  to  cases  where  the 
whole  proof  of  the  agreement  is  found  in  extraneous  evidence,  we 
are  not  now  called  upon  to  decide.  It  is  clear  that,  at  all  events,  the 
evidence  must  be  of  a  plenary  and  conclusive  character,  and  leave  no 
doubt  of  the  exact  character  and  terms  of  the  bargain  or  under- 
standing between  the  parties. 


INCOMPLETED    CONTRACTS  53 

We  are  aware  that  a  distinction  has  been  taken  between  parol  . 
contracts  and  those  under  seal,  and  that,  in  some  cases,  it  has  been 
held  that  the  rule  can  not  be  applied  to  bonds  or  deeds.  A  recent 
case  in  Massachusetts,  Burns  v.  Lynde,  6  Allen  305,  seems  to  favor 
this  view.  That,  however,  was  a  case  where,  when  the  seal  and  sig- 
nature were  affixed  to  the  paper,  it  was  a  printed  form  of  a  deed, 
in  which  none  of  the  blanks  had  been  filled  up.  As  the  court  say : 
"When  the  paper  was  delivered,  it  had  no  validity  or  meaning.  The 
filling  of  the  blanks  created  the  substantial  parts  of  the  instrument 
itself,  as  much  so  as  the  signing  or  sealing."  The  defendant  filled 
the  blanks,  after  it  was  given  to  him  by  the  signer,  in  her  absence, 
by  entering  the  names  of  the  parties,  the  description  of  the  land, 
and  the  agreement  of  release  of  dower  on  her  part,  and  the  date, 
and  other  words  necessary  to  complete  it.  The  defendant  offered  to 
prove  that,  when  she  signed  it,  she  authorized  him  to  fill  it  up  as  he 
did,  and  that,  after  it  was  filled  up  and  the  husband  had  executed  it 
the  defendant  informed  her  of  the  facts,  and  she  thereupon  verbally 
assented  to  what  had  been  done,  and  agreed  that  it  should  be  taken 
to  be  her  deed,  duly  executed.  This  evidence  was  excluded ;  and 
the  court  held  that  the  prior  authority  did  not  give  a  right  to  make 
this  entire  deed,  and  that  the  subsequent  assent  did  not  amount  to 
a  new  delivery. 

That  case  differs  from  the  one  before  us  in  several  particulars, 
especially  in  the  point  that  the  paper  or  deed,  when  signed,  con- 
tained nothing  expressive  of  the  intentions  of  the  parties,  or  a  de- 
scription of  the  property  to  be  conveyed.  Nothing  could  be  gath- 
ered from  it. 

The  examination  of  various  cases  in  this  country  and  in  England 
shows  that,  whilst  in  some  of  them  the  strict  rule  has  been  recog- 
nized, yet  there  are  none  that  deny  the  proposition  that  in  some 
cases  blanks  may  be  filled  in  sealed  instruments  by  a  third  person, 
who  is  not  authorized  by  power  under  seal.  The  only  distinction 
taken  between  parol  contracts  and  those  under  seal  is  a  purely  tech- 
nical one,  viz.,  that  an  authority  to  make  a  deed  or  execute  a  sealed 
instrument  for  another  must  be  of  as  high  a  character  as  the  instru- 
ment, i.  e.,  be  under  seal.  It  is  an  unquestioned  doctrine  of  the  com- 
mon law  that  a  person,  not  authorized  by  power  under  seal,  can  not 
execute  a  sealed  instrument  for  another,  or  change  a  parol  contract 
into  a  specialty.  Now,  if  it  is  the  absence  of  the  seal  on  the  authority 
that  prevents  the  validity  of  the  execution,  it  would  seem  that  noth- 
ing could  supply  it,  not  even  consent  by  parol.  And  yet,  as  before 
stated,  all  the  cases  seem  to  recognize  the  validity  of  such  filling  up, 
if  done  in  the  presence  of  the  grantor,  and  consent  inferred  from 
the  act  being  done  in  the  presence  of  the  grantor,  and  consent  given 
before  or  after,  or  implied  consent.  Warring  v.  Williams,  8  Pick. 
322  ;  Warring  v.  Williams,  8  Pick.  325  ;  Hudson  v.  Revett,  5  Bingham 
368  (15  E.  C.  L.  467). 


54  THE    CONTRACT 

In  these  cases  it  is  assumed  that  the  act  is  done  by  the  assent  and 
authority  of  the  grantor,  because  he  is  present  when  it  is  done  by 
another.  And  yet,  if  the  authority  must  be  under  seal,  where  is  the 
evidence  of  it?  The  whole  evidence  is  parol;  the  fact  of  the  pres- 
ence and  the  assent  is  proved  by  parol.  The  act  derives  its  efficacy 
only  from  authority  dependent  on  other  sources  than  a  seal.  It  is 
consent  that  gives  it  vitality,  and  that  consent,  it  is  proved  by  parol, 
was  given  by  parol.  Why  may  not  consent  be  established  by  proof 
that  the  authority  was  directly  given  before  the  act  was  done,  and 
when  the  paper  was  not  before  him?  There  is  no  clearer  parol  au- 
thority in  one  case  than  in  the  other.  It  is,  after  all,  a  mere  question 
of  assent.  Now,  consent  may  be  implied  as  well  as  expressed,  and, 
when  fairly  and  legally  inferred,  it  is  actual  and  effective  consent, 
as  much  so  as  when  direct  authority  is  shown  by  parol.  It  would 
seem  to  follow  that  the  rule  requiring  authority  under  seal  should 
either  be  strictly  enforced  in  all  cases  of  bonds  or  deeds,  so  that  no 
interlineations  or  insertions  can  be  legally  made  without  such  power, 
or  the  rule  should  be,  that  such  filling  up  may  be  made  when  au- 
thority or  consent  is  clearly  established  by  parol.  And  this  on  the 
ground  that,  if  necessary,  the  act  may  be  considered  as  having  been 
done,  in  substance,  by  the  grantor  himself.  When  the  instrument 
is  a  sealed  instrument,  when  signed  by  the  party,  the  filling  in  of 
the  blanks  afterward  by  another  is  not,  strictly  speaking,  the  execu- 
tion of  a  sealed  instrument.  That  has  already  been  done  by  the  party 
himself.  The  third  party  does  not  make  it  a  specialty  by  his  act.  It 
was  one  before.  The  filling  up  merely  perfects  an  imperfect  sealed 
deed  or  bond.  This  is  the  view  taken  by  the  English  court,  in  Hud- 
son v.  Revett,  5  Bingham,  before  cited.  The  court  say  (by  Gus- 
selee,  J.)  :  "The  way  in  which  I  consider  that  this  deed  is  good  is 
this — that  it  was  an  imperfect  execution,  with  an  agreement  at  the 
time  that  it  should  take  effect  when  the  blanks  were  filled  up."  On 
this  point,  see  Knapp  v.  Maltby,  13  Wendell  587. 

In  one  of  the  most  recent  cases  in  England,  that  of  Eagleton  v. 
Gutteridge,  11  M.  &  W.  466,  it  was  held  that  the  filling  in  of  a  blank 
in  a  power  of  attorney  under  seal,  which  was  sent  from  a  foreign 
country,  did  not  invalidate  it,  on  the  ground  that  consent  might  be 
inferred. 

The  court  in  Massachusetts,  in  the  learned  opinion  before  cited 
of  Burns  v.  Lynde,  admit  that  the  American  decisions  are  generally 
against  the  strict  views  taken  by  them.  This  is  undoubtedly  so.  In 
Pennsylvania,  in  the  case  of  Wiley  v.  Moor,  17  S.  &  R.  438.  In 
numerous  cases  in  New  York,  Bank  v.  Kostright,  22  Wend.  364; 
Wooley  v.  Constant,  -4  Johns.  54;  Ex  parte  Decker,  6  Cowen  60; 
Ex  parte  Kerwin,  8  Cowen  118;  Humphreys  v.  Guellow,  13  N.  H. 
385.  These  cases,  and  numerous  others  in  different  states,  recognize 
consent  as  the  essential  fact,  and  do  not  give  any  greater  effect  td 
consent  when  express  or  implied  from  the  presence  and  presumed 


INCOMPLETED    CONTRACTS  55 

knowledge  of  the  signer  than  when  fairly  implied  from  his  acts  or 
declarations.  Nor  do  they  distinguish  between  prior  and  subsequent 
assent. 

The  Supreme  Court  of  the  United  States  had,  in  several  cases, 
indicated  the  same  general  views.  (Speake  v.  United  States,  9 
Cranch  28;  White  v.  Vermont  R.  R.,  21  How.  575.)  And  the  same 
court,  in  the  recent  case  of  Drury  v.  Foster,  2  Wall.  24,  has  dis- 
tinctly and  unqualifiedly  settled  the  question.  The  court  say :  '/We/ 
agree  that,  by  signing  and  acknowledging  the  deed  in  blank,  anclUe- V" 
livering  the  same  to  an  agent,  with  an  express  or  implied  authority 
to  fill  up  the  blank  and  perfect  the  conveyance,  its  validity  could  not 
well  be  controverted..  (Although  it  was  at  one  time  doubted  whether 
a  parol  authority  was  adequate  to  authorize  an  alteration  or  addi- 
tion to  a  sealed  instrument,  the  better  opinion,  at  this  day,  is  that 
the  power  is  sufficient." 

The  rule  invoked  is  purely  technical.  Practically,  there  is  no  real  , 
distinction  in  this  matter  between  bonds  and  simple  contracts.  There 
is  no  more  danger  of  fraud  or  injury  or  wrong  in  allowing  insertions 
in  a  bond  than  there  is  in  allowing  them  in  a  promissory  note  or  bill 
of  exchange.  Both  are  agreements  or  contracts,  and  in  neither  can " 
unauthorized  alterations  be  made  with  impunity.  Considering  that 
the  assumed  difference  rests  on  a  mere  technical  rule  of  the  common 
law,  we  do  not  think  that  the  rule  should  be  extended  beyond  its 
necessary  limits,  viz.,  that  a  sealed  instrument  can  not  be  executed, 
by  another,  so  far  as  its  distinguishing  characteristic  as  a  sealed 
instrument  is  in  question,  unless  by  an  authority  under  seal. 

It  remains  to  apply  the  principles  before  stated  to  the  case  be- 
fore us.  The  ruling  of  the  judge  was  in  favor  of  the  plaintiffs  so 
far  as  the  insertion  of  the  names  of  the  sureties  who  had  signed, 
and  all  other  matters  appearing  on  the  face  of  the  instrument  to  q 
be  certain.  The  only  question  is  as  to  the  insertion  of  the  penalty,  - 
The  case,  as  stated  in  the  report,  sets  out  various  questions  of  fact 
which  were  in  dispute,  and  recites  that  there  was  evidence  tending 
to  show  that  the  bond  was  in  a  certain  condition,  when  signed,  as 
to  blanks  and  seals.  We,  however,  can  only  look  to  the  rulings  and 
request,  when  the  facts  are  not  stated  as  agreed  upon  or  settled. 
The  request  assumes  that  the  party  had  signed  and  executed  the 
bond  before  parting  with  it.  This  could  only  be  done  by  sealing  it 
himself.  The  ruling,  on  the  point  of  the  insertion  of  the  penal  sum, 
assumes  that,  if  Huntress  was  authorized  by  the  defendants  to  in- 
sert the  penal  sum,  he  might  do  so.  But  that  this  authority  must 
be  distinctly  proved,  and  required  other  evidence  to  sustain  it,  than 
was  required  to  authorize  the  insertion  of  other  matters,  appearing 
on  the  face  of  the  paper  to  be  certain.  The  reason  given  is  that  the 
penal  sum  of  the  bond  is  uncertain. 

At  first  view,  the  penalty  seems  to  be  a  vital  and  controlling  part 
of  the  bond.     But,  in  truth,  in  a  bond  with  a  condition,  subject  "to 


S** 


56  THE    CONTRACT 

chancery,  the  condition  is  the  essential  portion.  The  penal  sum  is 
almost  a  matter  of  form.  In  this  case  the  parties  intended  to  exe- 
cute a  bond  to  secure  the  town  from  loss  by  the  defaults  of  the  col- 
lector. This  was  the  whole  substance  of  the  agreement.  This  was 
what  the  parties  understood  and  assented  to.  This  is  the  whole  of 
the  condition,  as  expressed  in  the  bond.  Now,  no  penal  sum,  how- 
ever large,  could  extend  this  liability.  If  large  enough  to  cover  the 
possible  deficiencies,  any  increase  of  that  amount  would  be  simply 
nugatory,  and  of  no  avail  to  charge  the  signers.  If  a  less  sum  is 
inserted,  it  may  save  the  signers  from  a  portion  of  their  assumed 
liability,  and  therefore  could  not  be  objected  to  by  them  on  the 
ground  that  it  enlarged  the  responsibility  assumed  by  them  in  the 
condition.  So  that,  "quacunque  via  data,"  the  insertion  of  any  sum 
as  the  penalty  can  not  charge  the  obligors  beyond  the  actual  liabil- 
ity secured  in  the  condition  which  was  in  the  bond  when  signed. 
The  insertion  of  a  penal  sum,  therefore,  operated  simply  to  perfect 
the  bond  according  to  the  original  understanding,  without  injuriously 
affecting  the  signers.  In  a  bond  like  this,  it  is  one  of  those  things, 
Parsons,  C.  J.,  says  may  be  inserted  without  thereby  avoiding  the 
bond.  The  principle  was  correctly  stated  by  the  judge,  but  we 
think  he  erred  in  distinguishing  between  the  penal  sum  and  the  other 
insertions.  The  case  must  go  back  for  a  new  trial  on  the  principles 
stated  in  this  opinion. 

Exceptions  sustained. 

New  trial  granted. 

Appleton,  C.  J.,  Davis,  Walton,  Barrows  and  Danforth,  JJ.,  con- 
curred. 

Accord :  Rose  v.  Douglass  Township,  52  Kans.  451,  34  Pac.  1046,  39  Am.  St. 
354;  White  v.  Duggan,  140  Mass.  18,  2  N.  E.  110,  54  Am.  Rep.  437;  McCor- 
mick  v.  Bay  City,  23  Mich.  457;  Butler  v.  United  States,  21  Wall.  (U.  S.) 
272,  22  L.  ed.  614 ;  Fullerton  v.  Sturges,  4  Ohio  529 ;  Johnston  Harvester  Co. 
v.  McLean,  57  Wis.  258,  15  N.  W.  177,  46  Am.'  Rep.  39;  Treasurer  of  State 
Asylum  v.  Douglass,  77  Mo.  649;  State  v.  Young,  23  Minn.  551. 

Contra:  State  v.  Boring,  15  Ohio  507;  Copeland  &  Brantley  v.  Cunning- 
ham, 63  Ala.  394;  Spring  Garden  Ins.  Co.  v.  Lemmon,  117  Iowa  691,  86  N.  W. 
35;  Church  v.  Noble,  24  111.  291. 

See  also  Evarts  v.  Steger,  6  Ore.  55. 


TRUSTEES  OF  SCHOOLS  v.  JACOB  SHEICK  ET  AL. 

119  ///.  579,  8  N.  E.  189  (1886). 

Mr.  Justice  Graig  delivered  the  opinion  of  the  court : 
This  was  an  action  of  debt,  brought  by  the  board  of  school  trus- 
tees against  appelleesjupon  the  bond  of  Philip  Reitz,  a  defaulting 
school  treasurer.     In  the  circuit  court  the  plaintiffs  recovered  a 


Wo-1 


R^ 


INCOMPLETED    CONTRACTS  57 

judgment,  and  decided  that  no  action  could  be  maintained  on  the 
bond  against  the  sureties,  and  under  this  ruling  no  remanding  order 
was  entered.  The  bond  was  never  executed  by  Philip  Reitz,  the 
principal,  although  his  name  was  inserted  in  the  condition  and  oblig- 
atory part  of  the  instrument.  It  was  properly  executed  by  appellees, 
as  sureties,  and  was  accepted  and  approved  by  the  board  of  school 
trustees. 

Much  reliance  seems  to  be  placed,  in  the  argument,  upon  the 
finding  of  facts  as  incorporated  in  the  judgment  of  the  appellate 
court,  it^being  claimed  that  the  court  found  that  appellees  signed 
the  bond  upon  the  condition  that  it  should  not  be  delivered  until  it 
liaTTbeen  executed  by  the  principal.  We  do  not  so  understand  the 
finding.  The  circuit  court  had  found  the  facts,  and  recited  in  the 
record  what  that  finding  was,  and  this  seems  to  have  been  adopted 
and  sanctioned  by  the  appellate  court.  Up_on_an_examination  of  the 
finding  of  the  circuit  court  it  will  be  seen  that  the  court  found,  from 
the  evidence,  that  Reitz  promised  the  sureties  that  he  would  sign 
the  bond  before  it  was  delivered.  This,  however,  does  not  con- 
stitute the  execution  of  a  bond  upon  condition  that  it  should  not  be 
delivered  unless  executed  by  the  principal.  Indeed,  the  sureties 
seemed  to  rely  upon  the  promise  of  Reitz,  and  not  upon  a  condi- 
tional delivery,  as  is  apparent  from  the  finding  of  facts  by  the  cir- 
cuit court,  and  from  the  decided  weight  of  evidence. 

It  is  also  said  that  the  liability  of  appellees  should  be  construed 
.  strictly.  The  general  rule  is,  that  the  undertaking  of  a  surety  is  to 
I  be  construed  strictly.  He  is  only  bound  in  the  manner  and  to  the 
extent  set  forth  in  the  obligation  executed  by  him.  (Cooper  v.  The 
People,  85  111.  417.)  But,  adhering  to  this  rule  to  its  ultimate  limit, 
are  the  sureties  liable  on  the  obligation  which  they  executed?  The 
statute  required  this  bond  to  be  executed  and  delivered  to  the  trus- 
tees for  the  purpose  of  keeping  secure  the  public  funds  and  for  the 
purpose  of  guarding  against  a  public  loss.  In  view  of  this  fact, 
Avhile  we  regard  it  proper  to  adhere  to  the  rule  of  law  indicated 
above,  still  a  surety  who  has  incurred  an  obligation  of  this  char- 
acter should  not  be  allowed  to  escape  liability  upon  a  mere  tech- 
nical  defect  in  the  obligation  he  may  have  executed,  which  does 
not  go  to  the  substance  of  his  undertaking.  Keeping  this  principle 
in  view,  we  will  examine  the  principal  objections  urged  against  the 
validity  of  the  bond  upon  which  the  action  is  predicated. 

Ilt  is  claimed  that  where  the  name  of  an  intended  co-obligor  ap- 
pears upon  the  face  of  a  bond,  who  has  not  executed  it,  the  instru- 
ment is  imperfect,  and  not  binding.  The  decisions  of  the  courts  of 
the  different  states  are  not  harmonious  in  regard  to  the  binding  ef- 
fect of  a  bond  upon  the  rights  of  sureties,  where  the  bond  has  not 
been  executed  by  the  principal.  In  Bean  v.  Parker,  17  Mass.  603, 
where  an  action  was  brought  against  the  sureties  on  a  bail  bond 
which  had  not  been  executed  by  the  principal,  the  court  held  that 


58  THE    CONTRACT 

no  action  could  be  maintained.  It  is  there  said  :  "We  think  it  essen- 
tial to  a  bail  bond  that  the  party  arrested  should  be  a  principal.  It 
is  recited  that  he  is,  and  the  instrument  is  incomplete  and  void  with- 
out his  signature."  In  a  late  case  (Russell  v.  Annable,  109  Mass. 
72),  where  the  principals  in  a  bond  constituted  a  firm,  and  the  firm 
name  was  signed  by  one  of  the  partners,  the  court  held  that  the 
surety  was  not  bound  unless  it  appeared  that  the  partner  who 
signed  the  firm  name  had  authority  from  his  partner  to  do  so.  In 
Wood  v.  Washburn,  2  Pick.  24,  an  administrator's  bond,  not  exe- 
cuted by  the  administrator,  was  held  not  to  be  binding  on  the  surety. 
In  Ferry  v.  Burchard,  21  Conn.  602,  a  similar  question  arose,  and 
the  court  held  that  a  contract  of  a  surety  was  of  such  a  nature  that 
there  could  be  no  obligation  on  his  part  unless  the  principal  was  also 
bound.  In  Brown  v.  Jetmore,  70  Mo.  228  (a  late  case,  and  one,  too, 
quite  similar  to  the  one  before  us),  the  sureties  on  a  constable's 
bond  were  held  not  liable  for  a  default  of  the  constable,  upon  the 
sole  ground  that  the  bond  had  not  been  executed  by  the  principal. 
There  are  other  cases  holding  a  like  view,  and  there  are  others 
which  hold  that  the  sureties  may  be  held  liable  although  the  princi- 
pal did  not  execute  the  instrument.  State  of  Ohiguy^JBowman,  JLO 
<  >hio  445,  was  an  action  on  a  treasurer's  bond.  The  principal's 
name  was  in  the  body  of  the  bond,  but  he  did  not  sign  the  instrument. 
The  sureties  defended  on  the  ground  that  the  principal  had  not 
signed  it,  but  the  court  held  that  they  were  bound.  Loen,  Admr.,  v. 
Stocker,  68  Pa.  226,  was  an  action  against  sureties  on  a  bond  of 
indemnity.  The  principal's  name  had  been  signed  without  authority. 
In  the  decision  of  the  case  it  was  said :  "Had  the  bond  not  been 
executed  at  all  by  the  principal,  though  his  name  was  mentioned 
as  one  of  the  obligors  in  the  body  of  the  instrument,  it  is  clear  that 
the  surety  could  not  avail  himself  of  this  fact  as  a  defense."  Her- 
rick  v.  Johnson,  11  Mete.  34;  Keyser  v.  Keen,  17  Pa.  330;  Haskins 
v.  Lambert,  16  Maine  142;  Grim  v.  School  Comrs.,  51  Pa.  219;  Will- 
iams v.  Marshall,  42  Par.  524 ;  and  Miller  v.  Ferris,  10  Upper  Can. 
423,  announce  a  similar  rule. 

Johnston  v.  Township  of  Kimball,  39  Mich.  187,  is  a  case  in  its 
facts  quite  similar  to  the  one  under  consideration.  There,  as  here, 
the  suit  was  against  the  sureties  on  the  official  bond  of  a  defaulting 
treasurer.  The  bond  was  drawn,  setting  out  the  names  of  the  prin- 
cipal and  sureties,  but  it  was  never  executed  by  the  principal.  In 
the  decision  of  the  case  the  court  said:  "Our  statute  plainly  con- 
templates that  the  treasurer  shall  himself  be  a  party  to  his  own  offi- 
cial bond.  And  while  we  are  not  prepared  to  hold  that  a  bond 
knowingly  and  intentionally  given  without  his  concurrent  liability 
will  not  bind  the  obligors,  we  are  of  the  opinion  that  where  he  pur- 
ports to  be  obligor,  and  does  not  sign  the  bond,  there  must  be  posi- 
tive evidence  that  the  sureties  intended  to  be  bound  without  requir- 


INCOMPLETED    CONTRACTS  59 

ing  his  signature,  before  they  can  be  held  responsible."    See  also, 
Hall  v.  Parker,  39  Mich.  287,  where  the  same  doctrine  is  announced. 

We  have  given  the  authorities  bearing  on  the  question  due  con- 
sideration, and  we  are  not  inclined  to  adopt  the  view  held  by  the 
courts,  that  a  bond  signed  by  the  sureties  without  the  signature  of 
the  principal  may  not  be  binding  upon  those  who  execute  it,  as  was 
held  in  the  case  cited  from  Missouri,  and  other  like  cases.  If__th£  ^ 
sureties  saw  proper  to  bind  themselves  without  the  principal  execut- 
ing the  bond  and  becoming  bound,  we  think  they  might  do  so,  and 
their  undertaking  is  one  that  may  be  enforced  in  the  courts  by  an 
appropriate  action.  The  fact  that  the  principal  obligor  in  this  case 
failed  to  sign  the  bond,  was  a  mere  technicality,  which  ought  not  to 
affect  the  rights  of  any  ot  the  parties  concerned.  In  what  way  are 
the  sureties  injured  by  the  omission  of  the  principal  obligor  to  sign 
the  bond?  If  they  are  compelled  to  pay  the  trustees  any  sum  of 
money  on  account  of  the  default  of  the  treasurer,  they  can  recover 
the  amount  back  from  him  whether  he  signed  the  bond  or  not.  So 
far,  then,  as  they  are  concerned,  they  are  in  as  good  a  position  as  if 
Reitz,  the  treasurer,  had  properly  executed  the  bond.  If  Reitz  is 
insolvent,  a  judgment  in  favor  of  the  trustees,  against  him,  could 
be  of  no  benefit  to  the  sureties.  If,  on  the  other  hand,  he  is  solvent, 
the  sureties  can  collect  from  him  whatever  sum  they  may  be  required 
to  pay  in  consequence  of  executing  the  bond.  If  the  bond  had  been 
signed  by  the  sureties  upon  condition  that  it  should  not  be  deliv- 
ered to  the  trustees  until  executed  by  the  treasurer,  and  if  the 
trustees  had  received  notice  of  such  condition,  or  notice  of  such 
facts  pointing  to  such  a  condition  as  might  put  a  prudent  person 
on  inquiry,  before  the  bond  was  approved,  then  they  could  not  be 
regarded  as  innocent  holders  of  the  instrument,  and  entitled  to 
maintain  an  action  upon  it.  But  {the  sureties,  as  appears,  did  not 
sign  the  bond  on  such  condition,  but  executed  the  instrument,  and^ 
relied  merely  upon  the  promise  of  the  treasurer  that  he  would, 
before  delivery  of  the  bond,  sign  itj  This  was  no  more  than  a  se-  ^ 
cfet~promise  made  by  Reitz,  the  treasurer,  to  those  who  signed  as 
sureties,  which  could  not  be  binding  upon  the  trustees.  They  had 
no  notice  of  the  arrangement  existing  between  the  treasurer  and  the 
sureties,  and  they  ought  not  to  be  affected  by  it. 

In  Smith  v.  Peoria  County,  59  111.  414,  where  an  action  was 
brought  upon  an  official  bond  against  one  of  the  sureties,  he  set  up 
as  a  defense  that  he  signed  the  bond  on  condition  that  it  should  also 
be  executed  by  one  Cox,  as  cosurety,  before  it  should  be  delivered; 
that  Cox  failed  to  execute  the  bond ;  that,  in  violation  of  the  agree- 
ment, the  bond  was  delivered,  without  his  knowledge  or  consent. 
On  demurrer  to  pleas  in  which  this  defense  was  set  up,  the  mat- 
ters alleged  were  held  not  to  constitute  a  valid  defense  to  the  action 


60  THE    CONTRACT 

on  the  bond,  but  other  pleas  in  which  the  same  facts  were  set  up, 
and  also  that  the  plaintiff  had  notice,  were  held  to  constitute  a  valid 
defense  to  the  action.  Under  the  ruling  in  the  case  cited,  if  the  bond 
in  this  case  was  signed  by  appellees  upon  condition  that  it  was  not 
to  be  delivered  until  executed  by  the  principal,  and  the  trustees,  at 
the  time  they  accepted  and  approved  the  bond,  had  notice,  no  action 
could  be  maintained  on  the  bond;  but,  as  said  before,  no  such  de- 
fense was  made  out. 

The  judgment  of  the  appellate  court  will  be  reversed,  and  the 
cause  remanded  to  that  court  for  further  proceedings  in  conformity 
to  this  opinion. 

Judgment  reversed. 

Mr.  Justice  Schofield,  dissenting. 

Accord:  Cockrill  v.  Davie,  14  Mont.  131,  35  Pac.  958;  McKissack  v.  Mc- 
Clendon,  133  Ala.  558,  32  So.  486;  Douglas  County  v.  Bardon,  79  Wis.  641,  48 
N.  W.  969;  Star  Grocery  Co.  v.  Bradford,  70  W.  Va.  497,  74  S.  E.  509;  State 
v.  Bowman,  10  Ohio  445:  Empire  State  Surety  Co.  v.  Carroll  County,  194 
Fed.  593. 


GAY,  ADMINISTRATOR,  APPELLANT,  v.  MURPHY  ET  AL. 
134  Mo.  98,  34  S.  W.  1091,  56  Am.  St.  496  (1896). 

Burgess,  J. :  Action  to  recover  of  defendants,  as  sureties  of  An- 
drew G.  Wallin,  damages  aggregating  the  sum  of  $6,373.14  for 
breaches  of  a  building  bond.  The  penalty  of  the  bond  is  $10,000. 
It  was  never  signed  by  the  principal,  Wallin.    It  reads  as  follows : 

"Know  all  men  by  these  presents,  That  Andrew  G.  Wallin,  of  the 
city  of  St.  Louis,  Mo.,  as  principal,  and  P.  C.  Murphy,  L.  A.  Bow- 
lin  and  Charles  Green,  as  securities,  are  jointly  and  severally  held 
and  firmly  bound  unto  Taaffe  &  Gay,  of  the  city  of  St.  Louis,  Mo., 
in  the  sum  of  ten  thousand  dollars  ($10,000),  lawful  money  of  the 
United  States  of  America,  well  and  truly  to  be  paid  to  the  said 
Taaffe  &  Gay,  for  which  payment  well  and  truly  to  be  made,  we  bind 
ourselves,  and  each  of  us  by  himself,  our  and  each  of  our  heirs, 
executors  and  administrators,  firmly  by  these  presents.  Sealed  with 
our  seals  and  signed  with  our  hands,  this  thirtieth  day  of  April,  in 
the  year  of  our  Lord  eighteen  hundred  and  ninety. 

"The  condition  of  the  above  obligation  is  such  that,  whereas,  the 
said  Andrew  G.  Wallin,  principal,  has  on  the  day  of  the  date  of 
these  presents,  executed  and  entered  into  a  certain  contract  for  the 
erection  of  certain  buildings  in  said  contract  described,  which  con- 
tract is  hereto  annexed:  Now,  if  the  said  Andrew  G.  Wallin  shall 
well  and  truly  perform  and  fulfil  all  and  every  the  covenants,  condi- 
tions, stipulations  and  agreements  in  said  contract  mentioned  to  be 
performed  and   fulfilled,   and   shall   keep   the   said   Taaffe   &   Gay, 


INCOMPLETED    CONTRACTS 

owners,  harmless  and  indemnified  from  and  against  all  and  every 
claim,  demand,  judgments,  liens,  and  mechanic's  liens,  costs  and  fees 
of  every  description,  incurred  in  suits  or  otherwise,  that  may  be  had 
against  them  or  against  the  buildings  to  be  erected  under  said  con- 
tract and  shall  repay  the  said  Taaffe  &  Gay  all  sums  of  money 
which  they  may  pay  to  other  persons  on  account  of  work  and  labor 
done  or  materials  furnished  on  or  for  said  buildings,  and  if  the 
said  Andrew  G.  Wallin  shall  pay  to  the  said  Taaffe  &  Gay  all  dam- 
ages they  may  sustain,  and  all  forfeitures  to  which  they  may  be  en- 
titled by  reason  of  the  nonperformance  or  malperformance  on  the 
part  of  said  Andrew  G.  Wallin  of  any  of  the  covenants,  conditions, 
stipulations  and  agreements  of  said  contract,  then  this  obligation 
shall  be  void,  otherwise  the  same  shall  remain  in  full  force  and 
virtue. 

"Witness  our  hands  and  seals. 

"P.  C.  Murphy,  (Seal.) 

"L.  A.  Bowlin,  (Seal.) 

"Charles  Green,  (Seal.) 

« .  (Seal.)" 

Defendants  admitted  that  all  the  signatures  to  said  bond  and  con- 
tract are  the  genuine  signatures  of  the  parties  thereto,  but  objected 
to  the  admission  of  the  bond  in  evidence,  on  the  ground  that  said 
bond  is  not  regular  or  complete  on  its  face,  inasmuch  as  it  described 
Andrew  G.  Wallin  as  principal,  and  is  not  signed  by  him,  and  it 
does  not  appear  that  the  defendants,  who  signed  as  securities  for 
Wallin,  consented  to  be  bound  without  the  signature  of  said  prin- 
cipal. 

It  is  contended  by  plaintiff  that  the  bond  is  prima  facie  valid  and 
binding  on  those  who  signed  it,  though  not  signed  by  the  principal, 
and  as  it  is  found  in  the  possession  of  the  obligees,  if  for  any  rea- 
son defendants  are  not  bound,  the  burden  of  showing  that  they  are 
not  rests  upon  them. 

Upon  these  questions  the  authorities  are  in  much  conflict,  and 
irreconcilable.  The  following  authorities  hold  that  an  official  bond, 
or  a  bond  required  by  statute,  not  signed  by  the^  principal,  when 
purporting  to  be  executed  by  him,  is  prima  facie  invalid  as  to  the 
sureties.  Bunn  v.  Jetmore,  70  Mo.  228;  Sacramento  v.  Dunlap,  14 
Cal.  421;  Johnston  v.  Kimball  Township,  39  Mich.  187;  Wood  v. 
Washburn,  2  Pick.  24;  Russell  v.  Annable,  109  Mass.  72;  Good- 
year, &c,  Co.  v.  Bacon,  151  Mass.  460;  Green  v.  Kindy,  43  Mich. 
279;  Ferry  v.  Burchard,  21  Conn.  597;  Curtis  v.  Moss,  2  Rob.  (La.) 
367;  State  ex  rel.  v.  Austin,  35  Minn.  51 ;  Board  v.  Sweeney,  48  N. 
W.  302;  Bean  v.  Parker,  17  Mass.  591 ;  Martin  v.  Hornsby,  56  N. 
W.  751. 

Under  such  circumstances  the  presumption  is  that  each  one  of 
the  sureties  signed  the  bond  upon  the  understanding  that  the  others 


62  THE    CONTRACT 

named  as  obligors  and  especially  the  principal  would  also  sign  it. 
Johnston  v.  Kimball  Township,  supra;  Wells  v.  Dill,  1  Mart.  (La.) 
N.  S.  592. 

In  Sacramento  v.  Dunlap,  supra,  the  court,  speaking  through  Jus- 
tice Field,  said :  "The  liability  of  the  sureties  is  conditional  to  that  of 
the  principal.  They  are  bound  if  he  is  bound,  and  not  otherwise. 
The  very  nature  of  the  contract  implies  this.  The  fact  that  their 
signatures  were  placed  to  the  instrument  can  make  no  difference  in 
its  effect.  It  purports  on  its  face  to  be  the  bond  of  the  three.  Some 
one  must  have  written  his  signature  first,  but  it  is  to  be  presumed, 
upon  the  understanding,  that  the  others  named  as  obligors  would 
add  theirs.  Not  having  done  so,  it  was  incomplete  and  without  bind- 
ing obligation  upon  either." 

It  is  also  said  in  that  case  that  "the  instrument  in  this  case  is,  in 
form,  a  joint  bond  only,  and  not  joint  and  several,  and,  in  this  re- 
spect, differs  materially  from  the  bonds  in  the  cases  of  Parker  v. 
Bradley  et  al.,  2  Hill  584;  Cutter  v.  Whittemore,  10  Mass.  442,  and 
The  State  of  Ohio  v.  Bowman  et  al.,  10  Ohio  445." 

But  The  People  v.  Hartley,  21  Cal.  585,  which  was  also  a  suit 
on  a  joint  bond,  the  court  cites  with  approval  Bean  v.  Parker,  supra, 
and  Wood  v.  Washburn,  supra. 

The  bond  under  consideration  is  like  the  bonds  in  Bunn  v.  Jet- 
more,  supra,  and  Russell  v.  Amiable,  supra,  joint  and  several;  but 
as  was  said  in  Board  v.  Sweeney,  supra,  "the  decisions  are  placed 
upon  the  broad  doctrine  that  the  instrument,  as  delivered,  is  an  in- 
complete and  imperfect  instrument,  and  is  not  the  contract  contem- 
plated by  the  parties,  or  that  the  sureties  understood  they  were  mak- 
ing when  they  affixed  their  signatures  to  the  instrument." 

It  was  said  in  Russell  v.  Annable,  109  Mass.  72,  "the  instru- 
ment is  incomplete  without  the  signature  of  each  partner,  or  proof 
that  the  signature  affixed  (firm  name)  had  the  assent  and  sanction 
of  each  of  them.  The  sureties  on  a  bond  are  not  holden,  if  the  in- 
strument is  not  executed  by  the  person  whose  name  is  stated  as  the 
principal  therein.    It  should  be  executed  by  all  the  intended  parties." 

It  is  held  in  WTard  v.  Churin,  18  Gratt.  801 ;  Williams  v.  Springs, 
7  Ired.  L.  384;  Blume  v.  Bowman,  2  Ired.  L.  338;  Chandler  v. 
Temple,  4  Cush.  285 ;  Grim  v.  School  Directors,  51  Pa.  St.  220,  that 
the  possession  of  such  a  bond  by  the  obligee  is  prima  facie  evidence 
of  its  delivery  by  the  persons  who  have  signed  it,  and  the  burden  is 
on  them  to  show  that  it  was  not  to  be  delivered  until  signed  by  the 
principal. 

As  holding  that  such  a  bond  when  joint  and  several  is  binding  on 
all  who  sign  it,  may  be  cited,  Loew's  Admr.  v.  Stocker,  68  Pa.  St. 
226;  Woodman  v.  Calkins,  34  Pac.  187;  Miller  v.  Tunis,  10 
Up.  Can.  (C.  P.)  423  ;  State  to  use  v.  Bowman,  10  Ohio  445 ;  John- 
son v.  Johnson,  31  Ohio  St.  131  ;  Douglas  Co.  v.  Bardon,  79  Wis. 
641;  Trustees  v.  Sheik,  119  111.  579;  State  v.  Peck,  53  Maine  284; 

■ 


INCOMPLETED    CONTRACTS 


63 


Wild  Cat  Branch  v.  Ball,  45  Ind.  213;  Cooper  v.  Evans,  36  L.  J. 

Chan.  431. 

With  respect  to  official  and  other  statutory  bonds,  which  are  in 
the  one  instance  required  by  statute  to  be  executed  by  the  officer, 
and  in  the  other  to  be  given  by  the  principal  in  the  bond,  the  weight 
of  authority  is  in  accord  with  the  ruling  of  this  court  in  the  Jetmore 
case,  70  Mo.  228 ;  that  is,  if  the  name  of  the  principal  is  called  for 
in  the  bond,  and  it  is  not  signed  by  him,  it  is  not  only  void  as  to  him, 
but  as  to  all  who  sign  it  as  sureties.  And  it  makes  no  difference 
whether  it  be  in  form  joint  or  several,  and,  if  the  obligee  would 
hold  them  liable  on  it  he  must  show  that  they  consented  to  be  bound 
without  the  signature  of  the  principal.  When  there  is  no  principal 
in  such  case  there  is  no  surety. 

The  rule  is  different  when  the  bond  is  signed  by  the  principal,  and 
is  not  signed  by  one  of  the  sureties  named  in  the  bond.  In  such 
circumstances  the  bond  is  prima  facie  binding  on  all  who  sign  it. 
And  if  those  who  sign  it  would  avoid  responsibility  thereon  the  bur- 
den rests  upon  them  of  showing  that  at  the  time  of  its  execution  it 
was  agreed  that  the  bond  should  not  be  delivered  as  their  deed  until 
all  persons  named  in  the  bond  as  sureties  had  executed  it.  State 
ex  rel.  v.  Sandusky,  46  Mo.  377;  Grim  v.  School  Directors,  51  Pa. 
St.  220;  Blume  v.  Bowman,  2  Ired.  L.  (N.  C.)  338;  Ward  v.  Churn, 
supra;  Towns  to  use  v.  Kellett,  11  Ga.  286;  Chandler  v.  Temple,  4 
Cush.  supra ;  Bank  v.  Ridgely,  1  Harr.  &  Gill.  324 ;  Pawling  v.  , 
United  States,  4  Cranch  219;  Fletcher  v.  Austin,  11  Vt.  447;  Whit- 
aker  v.  Richards,  134  Pa.  St.  191. 

In  State  to  use  v.  Potter,  63  Mo.  212,  after  an  able  and  elaborate 
review  of  all  the  authorities,  Sherwood,  J.,  writing  the  opinion  of 
the  court,  held  that  an  agreement  of  a  surety  with  his  principal,  that 
the  latter  shall  not  deliver  a  bond  till  the  signature  of  another  is 
procured  as  a  cosurety,  will  not  relieve  the  surety  of  his  liability  on 
the  bond,  although  the  cosurety  is  not  obtained,  where  there  is  noth- 
ing on  the  face  of  the  bond,  or  in  attending  circumstances,  to  ap- 
prise the  taker  that  such  further  signature  was  called  for  in  order 
to  complete  the  instrument.  See  also  Dair  v.  United  States,  16 
Wall.  1 ;  State  ex  rel.  v.  Baker,  64  Mo.  167;  State  ex  rel.  v.  Modrel, 
69  Mo.  152 ;  State  ex  rel.  v.  Hewitt,  72  Mo.  603  ;  Wolff  v.  Schaeffer, 
74  Mo.  154. 

If,  then,  the  bond  sued  on,  being  as  we  hold  a  common-law  bond 
(State  ex  rel.  v.  Thompson,  49  Mo.  188),  is  to  be  governed  by  the 
same  rules  of  law  that  official  and  statutory  bonds  are,  it  is  prima 
facie  invalid,  and  the  referee  did  not  err  in  sustaining  the  objection 
to  its  admission  in  evidence. 

And  it  makes  no  possible  difference,  we  think,  that  it  is  a  joint 
and  several  bond,  as  under  the  Missouri  statute  (§  2384,  Rev. 
Stat.,  1889)  all  contracts  which  by  the  common  law  are  joint  only, 
are  to  be  construed  to  be  joint  and  several;  and  while  such  a  distinc- 


64 


THE    CONTRACT 

tion  has  been  made  by  courts  of  high  authority  (Sacramento  v. 
Dunlap,  14  Cal.  supra ;  Parker  v.  Bradley,  2  Hill  (N.  Y.)  584  supra  ; 
Cutter  v.  Whittemore,  10  Mass,  442 ;  State  to  use  v.  Bowman,  10 
Ohio  supra;  Kurtz  v.  Forquer,  94  Cal.  91),  it  has  never  been  made 
by  this  court. 

The  authorities  cited  on  the  question  of  the  invalidity  of  an  offi- 
cial or  statutory  bond,  not  signed  by  the  principal  named  in  such 
a  bond,  make  no  distinction  between  the  class  of  bonds  and  a  com- 
mon law  bond ;  but  there  are  authorities  which  make  such  a  distinc- 
tion (State  to  use  v.  Bowman,  supra),  a  principle  which  we  do  not 
controvert,  when  the  bond  shows  that  it  is  the  intention  of  the 
sureties  to  bind  themselves  regardless  of  the  fact  whether  the  prin- 
cipal signs  it  or  not. 

Nothing  of  the  kind  appears  from  the  bond  in  this  case.  On  the 
contrary,  itj)lainly  shows  that  it  was  to  be  signed  by  the  principal 
in  order  to  make  it  a  complete  instrument.  By  the  insertion  of  his 
name  in  the  bond  as  principal  there  was  an  implied  promise  to_the 
sureties  that  this  would  be  done  before  it  was  delivered,  and  the 
obligees  could  not  shut  their  eyes  to  its  imperfect  execution  thus 
patent,  and  hold  the  sureties  liable  on  the  bond  without  showing  by 
evidence  that  they  intended  to  be  bound  in  the  condition  that  it  was 
in  when  they  signed  it  in  any  event,  whether  signed  by  the  principal 
or  not. 

As  it  logically  follows  from  the  conclusion  reached  that  the  judg- 
ment must  be  affirmed,  it  becomes  unnecessary  to  pass  upon  other 
questions  raised  by  defendants.  The  judgment  is  affirmed.  Gantt, 
P.  J.,  and  Sherwood,  J.,  concur. 

Accord:  Weir  v.  Mead,  101  Cal.  125,  35  Pac.  567,  40  Am.  St.  46;  School 
District  v.  Lapping,  100  Minn.  139,  110  N.  W.  849;  Novak  v.  Pitlick,  120  Iowa 
286,  94  N.  W.  916,  98  Am.  St.  36a 


SECTION  5.    CONTRACT  OF  SURETYSHIP  OBTAINED 

BY  DURESS 

MARGARET  ROBINSON  v.  DANIEL  GOULD 

65  Mass.  55  (1853). 

Assumpsit  upon  a  promissory  note,  dated  August  24,  1851,  pay- 
able to  the  plaintiff"  on  demand.  The  main  ground  pf_ de fensejwas 
duress  and  a  want  of  consideration.  At  the  trial  in  the  courl'oFconi- 
mon  pleas,  before  Wells,  C.  LTthe  defendant  offered  evidence  tend- 
ing to  prove  that  the  present  plaintiff  having  a  note  against  one 
Greenough,  a  writ  against  him  was  given  to  a  constable,  who  went 
to  Greenough's  house  to  get  security,  or  to  arrest  him,  and  that,  the 


<rvJU 


SURETYSHIP    OBTAINED    BY    DURESS 


65 


note  in  suit  was  given  to  release  said  Greenough  from  arrest  until 
the  following  Tuesday.  There  was  also  some  evidence  tending  to 
show  that,  said  note  was  given  as  collateral  security  that  said  Green- 
ough should  pay  the  plaintiff  the  amount  of  his  claim  on  or  before 
the  following  Tuesday,  and  that  the  proceedings  for  collecting  the 
same  should  be  suspended  until  that  time,  but  that  said  Greenough 
had  not  paid  said  indebtedness.  It  was  admitted  that  the  constable 
had  no  legal  right  to  serve  said  writ  against  Greenough,  and  the 
defendant  requested  the  presiding  judge  to  rule  that  if  said  con- 
stable, having  no  legal  right  to  serve  said  writ,  imprisoned  said 
Greenough,  and  threatened  to  and  was  about  to  arrest  him,  and 
thereby  the  defendant  was  led  to  give  this  note,  it  would  be  void ; 
and  that  if  said  constable  did  not  disclose  to  the  defendant  what  he 
knew  touching  said  note  first  sued  on,  or  misled  the  defendant,  to 
think  he  was  becoming  bail  merely,  this  note  would  be  void.  The 
judge  declined  so  to  instruct  the  jury,  but  instructed  them  that  the 
note  was  prima  facie  evidence  of  a  debt  to  the  amount  specified 
in  the  same,  and  that  the  burden  of  proof  was  on  the  defendant  to 
impeach  it :  that  it  was  for  the  jury  to  decide,  in  view  of  all  the  evi- 
dence, as  to  the  agreement  made  by  the  parties,  to  carry  out  which 
the  note  in  suit  was  given :  that  if  the  agreement  was,  that  in  con- 
sideration of  giving  the  note,  the  constable  should  forbear  to  arrest 
the  said  Greenough,  or  should  release  him  if  arrested,  or  if  the  note 
was  agreed  to  be  taken  as  a  substitute  for  a  bail  bond,  in  either  of 
these  cases  as  the  constable  was  not  authorized  to  serve  the  writ, 
the  note  would  be  void ;  but  if  the  note  was  given  as  collateral  secu- 
rity that  the  said  Greenough  should  pay  the  first  note  by  the  next 
Tuesday,  and  that  the  plaintiff  should  give  credit  and  forbear  asking 
or  attempting  to  force  payment  on  the  first-mentioned  note  until 
the  said  Tuesday,  and  the  plaintiff  did  give  said  credit  until  said 
time,  and  the  said  Greenough  omitted  to  make  payment  on  that  day, 
then  the  said  note  was  valid  to  the  extent  of  the  amount  of  the  first- 
mentioned  note,  and  interest,  and  that  it  would  not  invalidate  the 
note  to  prove  that  the  same  was  given  in  consequence  of  a  threat 
to  arrest  the  said  Greenough,  if  the  first-mentioned  note  was  not 
secured,  or  by  actually  arresting  him  on  said  writ,  if  the  plaintiff's 
agent  and  the  constable  supposed  the  arrest  was  legal.  The  jury 
wTs~~requested  to  find  specially  whether  any  arrest  was  made,  and 
they  found  there  was  not.  The  verdict  was  for  the  plaintiff  for  the 
amount  of  the  first  note  and  interest,  and  the  defendant  filed  his 
exceptions. 

Bigelow,  J. :  The  general  rule  of  law  is  well  established,  on 
reasons  of  justice  and  sound  policy,  that  contracts,  in  order  to  be 
valid  and  binding,  must  be  the  result  of  the  free  assent  of  the  par- 
ties. Therefore  duress,  either  of  actual  imprisonment  or  per  minas, 
constitutes  a  good  defence  to  an  action  on  a  contract  in  behalf  of 
5— DeWitx, 


v^ 


66 


THE    CONTRACT 


those  from  whom  contracts  have  been  thus  extorted.  Duress  by 
menaces,  which  is  deemed  sufficient  to  avoid  contracts,  includes  a 
threat  of  imprisonment,  inducing  a  reasonable  fear  of  loss  of  liberty. 
2  Rol.  Ab.  124;  2  Inst.  482-3 ;  Bac.  Ab.  Duress  (A)  ;  20  Amer.  Jur. 
y  24 ;  Chit  on  Cont.  168.  It  is  well  settled  that  the  duress,  which 
will  avoid  a  contract,  must  be  offered  to  a  party  who  seeks  to  take^ 
advantage  of  it.!  This  was  early  adjudged  in  Mantel  v.  Gibbs,  1 
Brownlow  64,  where,  to  an  action  of  debt,  brought  on  an  obliga- 
tion, the  defendant  pleaded  that  a  stranger  was  imprisoned  until 
the  defendant,  as  surety  for  the  stranger,  made  the  bond.  This 
was  held  a  bad  plea.  The  same  principle  is  laid  down  in  Hanscombe 
v.  Standing,  Cro.  Jac.  187,  where  it  was  held  that  none  shall  avoid 
his  own  bond  for  the  imprisonment  or  danger  of  any  other  than  of 
himself  only,  and  although  the  bond  be  avoidable  as  to  the  one,  yet 
it  is  good  as  to  the  other.  Wayne  v.  Sands,  1  Freeman  351 ;  Shep. 
Touch.  62;  McClintick  v.  Cummins,  3  McLean  158;  20  Amer.  Jur. 
26. 

And  certainly  this  distinction  rests  on  sound  principle.  /He  only_ 
should  be  allowed  to  avoid  his  contract,  upon  whom  the  unlawful  rg- 
c?\  straint  or  fear  has  operated.  The  contract  of  a  surety,  if  his  own 
free  act,  rind  executed  without  coercion  or  illegal  menace,  should  be 
/  held  binding.  The  duress  of  his  principal  can  not  affect  his  free^ 
agency  or  in  any  way  control  his  action.  |  It  may  excite  his  feelings, 
awaken  his  generosity,  and  induce  him  to  act  from  motives  of  char- 
ity and  benevolence  toward  his  neighbor ;  but  these  can  furnish  no 
valid  ground  of  defence  against  his  contract,  which  he  has  entered 
into  freely  and  without  coercion. 

The  case  at  bar  falls  very  clearly  within  this  principle.     The  de- 
fendant was  put  under  no  restraint ;  no  threats  were  made  to" him. 
[  lis  principal  may  have  been  coerced  to  apply  to  the  defendant  to  be 
his  surety,  but  there  is  nothing  in  the  case  which  tends  to  show  any 
(duress  toward  the  defendant. 

Exceptions  overruled. 

Accord :    Oak  v.  Dustin,  79  Maine  23,  7  Atl.  815. 


GRIFFITH  FT  AL.  v.  SITGREAVES  - 

90  Pa.  St.  161   (1879). 

Assumpsit  by  Matthew  H.  Griffith,  James  Roberts  and  J.  Milton 
Butler,  partners,  trading  as  Griffith.  Roberts  &  Butler,  against  Theo- 
dore R.  Sitgreaves,  to  recover  $2,903.68,  the  amount  of  seven  prom- 
issory notes,  of  which  defendant  was  the  accommodation  endorser 
for  Robert  C.  Pyle,  the  maker.  The  defendant  pleaded  non-assump- 
sit. 


SURETYSHIP   OBTAINED   BY   DURESS  67 

The  court,  inter  alia,  found  the  following  facts : 

That  at  the  time  said  notes  were  signed  and  delivered  by  said  Pyle 
to  Matthew  H.  Griffith,  one  of  the  plaintiffs,  the  said  Pyle  was  un- 
dexjdimess  of  imprisonment  and  duress  per  minas,  by  reason  of  acts 
done  and  threats  made  by  said  Griffith,  and  the  general  conduct  of 
said  Griffith,  and  one  Thomas  Wheeler,  commencing  in  the  forenoon 
on  the  9th  of  January  and  terminating  lfi  the  afternoon  of  EHe  llih 
ojJanujry,_1874.  That  the  said  notes  were  signed  and  delivered  as 
aforesaid,  under  and  by  reason  of  said  duress.  That  there  is  no  evi- 
dence in  this  case  from  which  the  court  can  find  as  a  fact  that  Pyle 
after  the  making  and  delivery  of  said  notes,  agreed  or  promised  to 
pay  said  notes,  made  any  declarations  or  done  any  act  by  which  he 
either  waived  the  right  or  estopped  himself  or  Sitgreaves  to  set  up 
said  duress  as  a  defence  in  an  action  on  said  notes  either  against  him- 
self or  Sitgreaves. 

The  court  having  found  the  fact  that  the  notes  were  signed  and 
delivered  by  Pyle  to  the  plaintiffs  under  and  by  reason  of  duress  of 
imprisonment  and  duress  per  minas,  held,  that  the  same  were  abso-  . 
lutely  void  as  against  Pyle  as  maker  and  Sitgreaves  as  endorser  in 
the  hands  of  a  person  who  was  a  party  to  said  duress,  or  of  a  holder 
who  had  notice  thereof  before  he  received  said  notes.  And  that  in 
an  action  on  said  notes  by  the  plaintiffs  against  Sitgreaves,  it 
was  competent  for  the  latter  to  set  up  as  a  defence  the  duress  of  j 
Pyle,  and  especially  so  where  the  fact  was  found  as  in  this  case,  that 
the  duress  was  effected  through  the  agency  of  one  of  the  plaintiffs 
in  this  action. 

Mr.  Justice  Paxson  delivered  the  opinion  of  the  court  May  7th, 
1879. 

We  are  next  to  consider  the  question  whether  the  defendant,  who 
is  sued  as  endorser  of  the  notes,  can  take  advantage  of  the  duress 
practiced  upon  the  maker.  In  1  Iuscombe  v.  Standing,  Cro.  Jac.  187, 
the~3eTehdant  having  been  sued  on  a  bond,  on  which  he  was  surety 
for  one  Street,  entered  a  plea  that  the  bond  was  obtained  by  duress 
of  his  principal.  The  plaintiff  demurred  to  this  plea,  and,  without 
argument,  it  was  held  that  "it  was  not  any  plea  for  the  surety,  al- 
though it  had  been  a  good  plea  for  the  said  Street ;  for  none  shall 
avoid  his  own  bond  for  the  imprisonment  or  duress  of  any  other 
than  himself.  The  same  doctrine  is  recognised  in  Bacon's  Abridg., 
title  Duress  A.,  and  2  Rolle's  Abridg.  124.  The  later  authorities  are 
conflicting,  with  no  adjudicated  case  in  Pennsylvania.  Mantel  v. 
Gibbs,  1  Brownlow  62;  Robinson  v.  Gould,  11  Cush.  55;  Plummer 
v.  The  People,  16  111.  358;  McClintick  v.  Cummins,  3  McLean  158, 
and  Thompson  v.  Lock  wood,  15  Johns.  259,  were  cited  by  plaintiffs  '■ 
as  sustaining  the  doctrine  that  the  duress  which  will  avoid  a  con- 
tract must  be  offered  to  the  party  who  seeks  to  take  advantage  of  it. 
On  the  other  hand,  Strong  v.  Grannis,  26  Barb.  122,  Osborn  v.  Rob- 
bins,  36  N.  Y.  365,  and  Fisher  v.  Shattuck,  17  Pick.  252,  were  cited 


' 


68 


THE    CONTRACT 


on  behalf  of  the  defendant  as  sustaining  the  opposite  view.  I  have 
examined  these  cases  with  some  care,  and  do  not  regard  them  as 
controlling  authority  on  either  side.  They  depend  very  much  upon 
the  pleadings  or  their  special  circumstances.  I  have  no  doubt  of 
the  correctness  of  the  general  principle  laid  down  in  the  older  cases 
that  duress,  to  be  a  good  plea,  must  be  offered  to  the  person_who 

-  seeks  to  take  advantage  of  it.  As  in  the  case  of  two  joint  and  sev- 
eral obligors  in  a  bond,  a  plea  by  one  defendant  of  duress  practiced 
upon  the  other  would  be  a  bad  plea,  for  the  reason  that  if  his  signa- 
ture was  obtained  without  duress  of  what  consequence  is  it  tc  him 
that  his  co-obligor  signed  under  duress  ?  In  all  cases  cited,  the  du- 
ress was  either  upon  the  party  seeking  to  avoid  the  instrument  sued 
upon,  or  it  was  known  to  him.  Thus,  in  Robinson  v.  Gould,  supra, 
the  action  was  on  a  note  made  by  A  to  B  to  procure  the  release  of 
C  from  an  unlawful  arrest,  brought  about  by  B.  Here  A  entered 
into  an  independent  contract,  not  as  surety,  but  as  principal,  with  a 
full  knowledge  of  all  the  facts,  and  as  the  court  said,  upon  a  suffi- 

i  cient  consideration :  "The  case,  therefore,"  in  the  language  of  the 
court,  "is  exactly  this :  A  promise  by  the  defendant,  upon  a  valid 
consideration,  fully  assented  to  by  him  without  coercion  or  restraint 
of  any  kind."  McClintick  v.  Cummins,  3  McLean  158,  decides  noth- 
ing that  affects  the  case  in  hand.  The  court  said :  "It  is  not  neces- 
sary to  decide  this  question  (the  duress),  as,  from  the  facts,  it  does 
not  appear  that  the  imprisonment  of  Johnson  was  unlawful,  or  that 
he  was  detained  until  he  executed  the  notes."  Plummer  v.  The  Peo- 
ple, supra,  was  a  suit  upon  a  recognizance  against  the  principal  and 
the  sureties.  The  principal  was  committed  by  a  magistrate  in  the 
state  of  Illinois  for  a  larceny  committed  in  another  state.  After- 
wards, the  magistrate,  in  the  absence  of  the  accused,  and  without 
proof,  made  out  a  second  mittimus  for  an  offence  committed  with- 
in the  state.  The  accused,  to  relieve  himself  from  confinement,  gave 
the  recognizance  in  question.  The  defendants  pleaded  duress,  and 
the  court  below  gave  judgment  in  their  favor  upon  the  plea.  The 
court  above  affirmed  the  judgment  as  to  the  principal,  and  reversed 
it  as  to  his  sureties,  saying:  "I  do  not  hold  that  the  same  facts  might 
not  also  have  been  made  available  by  the  sureties,  at  the  proper  time, 
and  in  a  proper  form  of  plea,  but  they  can  not  avail  themselves  of 
them  by  a  plea  of  duress  of  their  principal."  This  case  recognises 
the  doctrine  I  have  already  suggested,  that  duress,  as  a  plea,  is  bad 
if  the  duress  set  up  was  upon  some  person  other  than  the  party 
pleading  it.  It  also  appeared  that  the  sureties  had  knowledge  of  the 
duress  when  they  signed  the  recognizance.  This  was  also  the  case 
in  Strong  v.  Grannis,  supra,  cited  by  the  defendant.  Here  the  action 
was  against  two  persons  as  makers  of  a  promissory  note ;  the  de- 
fence set  up  was  that  the  note  was  executed  under  duress  of  im- 
prisonment of  one  of  the  makers,  and  to  procure  his  release  there- 


SURETYSHIP    OBTAINED    BY   DURESS 


69 


from,  and  was  signed  by  the  other  as  his  surety.  The  court  held 
that  the  surety  might  avail  himself  of  the  duress.  This  was  a  case  in 
the  Supreme  Court.  Osborn  v.  Robbins,  supra,  was  in  the  Court  of 
Errors  and  Appeals.  The  note  was  given  by  a  son,  with  his  father 
as  surety,  in  settlement  of  an  arrest  upon  the  charge  of  rape,  under 
circumstances  that  indicated  an  abuse  of  legal  process,  for  the  pur- 
pose of  oppression.  The  court  held  that  the  surety  could  avail  him- 
self of  the  duress.  This  case  is  not  authority  to  the  extent  claimed 
for  it  by  the  defendant,  for  the  reason  that  the  surety  was  the 
father  of  the  defendant.     This  is  one  of  the  old  authorities. 

It  by  no  means  follows  that  because  duress  of  another  is  not  a 
good  plea,  and  that  in  some  instances  it  may  not  even  avail  as  a  de- 
fence, that  is  can  not  be  set  up  successfully  in  any  case.  Had  the  de- 
fendant, after  endorsing  these  notes,  passed  them  to  the  plaintiffs 
and  received  the  money  therefor,  it  is  very  clear  he  could  not  set  up 
the  defence  of  duress  of  the  maker ;  so  if  he  had  endorsed  them  with 
notice  of  the  duress,  or  if  the  notes  were  in  the  hands  of  an  inno-  . 
cent  third  party  for  value.  In  these  and  many  other  instances  that 
might  be  named,  the  defence  referred  to  would,  for  obvious  reasons, 
be  unavailing.  The  case  in  hand,  however,  differs  materially  from 
them  and  from  all  cases  cited.  Here  the  defendant  was  the  surety 
of  the  maker,  nothing  more,  and  defends  under  the  broad  plea 
of  nonassumpsit.  The  form  of  the  transaction  is  not  material  so 
long  as  the  contention  is  between  the  original  parties.  The  defend- 
ant's contract  is  to  pay  the  notes,  if  his  principal  fails  to  do  so;  and 
he  may  be  proceeded  against  immediately  upon  such  failure.  But 
upon  payment  of  the  money  he  has  his  remedy  over  against  his  prin- 
Jcipal.  Atis  a  recognised  doctrine  in  the  law  of  surety,  that  whatever 

-  / discharges  the  principal  debtor,  also  discharges  the  suret^^l here 
are  exceptions  to  the  rule,  as  where  one  had  signed  a  joint  and  sev- 

/   eral  note  with  a  married  woman  as  surety :   1   Pars,  on  Bills  and 
Notes  244.     Nor  will  this  rule  apply  to  cases  in  which  a  surety  is 

V.  required,  for  the  very  reason  that  the  principal  may  have  a  defence 
that  will  defeat  the  claim  against  him. 

In  these  and  the  like  cases,  the  surety  knows  when  he  binds  him- 
self that  he  has  no  remedy  over.  He  is  not,  therefore,  misled.  The 
defendant  endorsed  the  notes  without  any  knowledge,  or  any^Hjwg 
to  put  him  upon  inquiry ^en  the  duress  practiced  upon  his  principal.  . 
The  result  will  be,  if  a  recovery  is  had  against  the  defendant,  he  will 
have  no  redress  against  the  maker,  and  this  by  reason  of  the  duress 
upon  the  maker,  the  act  of  the  plaintiff's.  He  is  therefore  directly 
injured  by  it,  and  has  a  right  to  defend  upon  that  ground.  Had  he 
signed  the  notes  with  knowledge  of  the  duress,  it  would  have  been 
his  own  folly,  and  the  consideration  being  good,  the  plaintiffs  would 
have  been  entitled  to  recover.  But  they  made  the  mistake  of  keep- 
ing the  maker  a  quasi  prisoner  in  New  York  by  threats  of  an  arrest, 


70  THE    CONTRACT 

whilst  the  notes  were  sent  to  the  endorser  for  his  signature,  thus  de\ 
priving  him  of  his  remedy  over  against  his  principal.     In  doing  this:  | 
the  plaintiffs  overreached  themselves. 
The  judgment  is  affirmed. 

Accord :    Schuster  v.  Arena,  83  N.  J.  L.  79,  84  Atl.  723 ;  Patterson  v.  Gib- 
son, 81  Ga.  802,  10  S.  E.  9,  12  Am.  St.  356. 


FOUNTAIN  v.  BIGflAM,  APPELLANT 
235  Pa.  35,  84  Atl.  131  (1912). 


Opinion  by  Mr.  Justice  Mestrezat. 

Nathaniel  L.  Fountain,  the  plaintiff,  and  A.  J.  Dunn,  a  real  estate 
broker,  were  jointly  interested  in  real  estate  speculations  in  Phila- 
delphia in  1903  and  in  1904.  Toraise  funds  to  carry  on  a  proposed 
W  joint  enterprise,  Fountain,  at  the  request  of  Dunn,  executed  a  mort- 
gage on  his  real  estate,  dated  December  9,  1904,  with  the  name  of  the 
mortgagee  presumably  in  blank,  and  left  it  with  Dunn  with  instruc- 
tions not  to  place  it  without  notice  to  Fountain.  In  violation  of  these 
instructions,  Dunn,  without  Fountain's  knowledge  or  consent,  placed 
the  mortgage  and  received  a  check  for  the  proceeds,  amounting  to 
$1,164.75,  drawn  to  Fountain's  order.  The  check  was  endorsed  with 
Fountain's  name,  without  his  knowledge  or  consent.  Immediately 
beneath  the  endorsement  of  his  name,  Dunn  wrote  his  own  name 
and  deposited  the  check  and  received  credit  for  the  amount  in  his1 
bank  account.  Fountain  did  not  know  that  the  mortgage  had  been 
placed  until  notice  in  the  foreclosure  proceedings  was  posted  on 
his  property.  Dunn  does  not  deny  he  still  owes  Fountain  the  pro- 
,JV£pceeds  of  the  check. 

About  May  1,  1906,  Dunn  was  arrested  on  two  informations  made 
by  Fountain  charging  him  with  obtaining  money  under  false  pre- 
tenses. Dunn  was  held  by  the  magistrate  for  trial  and  subsequently 
the  grand  jury  found  true  bills.  In  1909  the  cases  were  tried  and 
the  defendant  was  acquitted. 

Dunn,  being  indebted  to  Fountain  in  various  sums,  including  the 


amount  of  the  check,  gave  the  latter,  on  September  10,  1906,  a  bond 
with  warrant  of  attorney  to  confess  judgment,  with  Mrs.  Mary  A. 
Bigham,  his  mother-in-law,  as  surety  conditioned  for  the  payment 
of  $2,500  in  one  day  after  date.  Judgment  was  entered  on  the  bond 
on  the  next  day.  After  two  instalments  of  interest  had  been  paid 
on  the  judgment  and  default  as  to  the  third  instalment,  execution 
was  issued.  Mrs.  Bigham  presented  her  petition  to  the  court  below 
and,  for  the  reasons  therein  set  forth,  obtained  a  rule  to  stay  the 
writ,  open  the  judgment  and  let  her  into  a  defense.  This  rule  was 
made  absolute.     The  case  was  tried  on  the  plea  of  nonassumpsit, 


V\ 


SURETYSHIP    OBTAINED    BY   DURESS  71 

J      j- 

and  having  resulted  in  a  verdict  and  judgment  for  the  plaintiff,  Mrs. 
Bigham  took  this  appeal.     Dunn  did  not  appeal. 

Mrs.  Bigham  alleges  that  the  bond  is  invalid  and  not  enforceable 
against  her  for  the  following  reasons :    (a)  it  was  given  in  consid- 
eration of  compounding  a  forgery,  (b)  the  consideration  failed  be- 
cause part  thereof  was  the  discontinuance  of  the  prosecutions   for 
.  /  false ^r£i£nse^lwhich  were  tried,   (c)   the  prosecutions  were  insti- 
1/  tuted  solely  for  collection  of  a  debt,  (d)  the  bond  was  executed  un- 
//,  der  the  influence  of  threats  and  coercion,  (e)  and  part  of  the  con- 
sideration was  an  agreement  to  settle  the  prosecutions  for  false  pre- 
tenses without  leave  of  the  court.  ^1  h  sl-O^ 

That  a|  contract  obtained  by  duress  or  acts  of  coercion  or  intimi^J^ 
dation  may  be  invalidated^  well  settled.    Under  such  circumstances, 
trie"  party  coerced  is  not  exercising  his  free  will  but  executing  the 
will  of  the  party  who  subjects  him  to  the  coercion,  and,  therefore, 
the  instrument  bearing  his  signature  is  not  the  contract  of  the  party 
against  whom  it  is  sought  to  be  enforced.     Such  contracts  are  pro^ 
cured  by  duress  and  may  be  invalidated.     The  test  of  duress  is  not, 
so  much  the  means  by  which  the  party  was  compelled  to  execute  the/^ 
contract  as  it  is  the  state  of  mind  induced  by  the  means  employed — j  . 
the_fear  which  made  it  impossible  for  him  to  exercise  his  own  free 
will :  Williamson-Halsell  Frazier  Co.  v.  Ackerman  (Kans.)  20  L.  R. 
A.   (N.  S.)  484.     The  threat  must  be  of  such  a  nature  and  made 
under  such  circumstances  as  to  constitute  a  reasonable  and  adequate 
cause  to  control  the  will  of  the  threatened  person  and  must  have  that 
effect,  and  the  act  sought  to  be  avoided  must  be  performed  by  such 
person  while  in  such  condition:  Wolff  v.  Bluhm  (Wis.)   60  Am. 
St.  115.    *    *    * 

In  this  case,  however,  Dunn  is  not  contesting  the  validity  of  the 
bond,  but  the  present  appeal  was  taken  by  Mrs.  Bigham,  his  mother- 
I  in-law,  the  surety  on  the  bond.  Can  she  avoid  the  obligation  on  the 
i,  ground  of  duress  exercised  on  Dunn?-  The  general  rule  undoubtedly 
y^  is  that  the) defense  of  duress  is  open  only  to  the  party  upon  whom 
it  js  imposecl7and  that  a  third  party  who  has  become  surety  for  the 
payment  of  the  claim  can  not  avail  himself  of  the  plea  unless  he  \ 
signed  the  obligation  without  knowledge  of  the  duress.  There  are 
certain  exceptions  to  the  rule  as  well  established  as  the  rule  itself. 
These  exceptions  include  husband  and  wife  and  parent  and  child, 
and  either  may  avoid  his  contract  made  to  relieve  the  other  from 
duress.  The  exceptions  have  been  extended  to  grandmother  and 
grandson  :  Bradley  v.  Irish,  42  111.  App.  85  ;  aunt  and  nephew  :  Shar- 
on v.  Gager,  46  Conn.  189;  sister  and  brother:  Schultz  v.  Catlin, 
78  Wis.  611;  father-in-law  and  son-in-law:  Snyder  v.  Willey,  33 
Mich.  483 ;  Nebraska  Mutual  Bond  Association  v.  Klee,  70  Nebr. 
383  ;  and  brother  and  brother:  Davis  v.  Luster,  64  Mo.  43.  The  rea- 
son for  avoiding  a  contract  on  the  ground  of  duress,  as  appears 
above,  is  that  the  condition  of  mind  of  the  party  upon  whom  the 


72  THE    CONTRACT 

duress  is  imposed  is  such  as  to  deprive  him  of  the  exercise  of  his  free 
will.  Whatever  influence  produces  such  a  condition  of  mind  will  in- 
validate a  contract  executed  while  the  influence  prevails.  The  relations 
between  parent  and  child  and  husband  and  wife  are  so  close  and  ten- 
der that  the  law  recognizes  that  threats  to  imprison  one  will  have 
substantially  the  same  effect  on  the  mind  of  the  other,  and  what  will 
deprive  the  one  of  the  free  exercise  of  his  will  or  judgment  will  have,, 
a  like  effect  on  the  other.  The  reason  of  the  rule  will  extend  it  to]  k 
I  the  case  of  a  mother-in-law  and  son-in-law  where  the  1nrtefjg~1iy-/i/- 
1  ing  amicably  with  his  wife,  and  the  two  families  are  on  the  usual 
terms  of  intimacy  and  friendship.  In  holding  that  duress  to  a  child 
will  relieve  a  parent  from  his  obligation,  Morton,  J.,  in  Harris  v. 
Carmody  (Mass.),  41  Am.  Rep.  188,  said  (p.  190)  :  "No  more  pow- 
erful and  constraining  force  can  be  brought  to  bear  upon  a  man,  to 
overcome  his  will  and  extort  from  him  an  obligation,  than  threats 
of  great  injury  to  his  child.  Both  upon  reason  and  upon  the  weight 
of  the  authorities  we  are  of  opinion  that  a  parent  may  avoid  his 
obligation  by  duress  to  his  child."  A  mother's  affection  for  her 
daughter  would  under  ordinary  circumstances  compel  protection 
against  grief  and  sorrow  of  the  latter  by  affording  relief  to  the  son- 
in-law.  The  daughter's  happiness  depends  upon  her  husband's  hap- 
piness, and  in  protecting  the  one  the  mother  assures  the  other.  This 
is  everyday  experience  and  the  law  recognizes  the  fact.  In  Loud  v. 
Hamilton  (Tenn.),  45  L.  R.  A.  400,  the  court  says  (p.  405)  :  "We 
are  inclined  to  the  opinion  that  where  a  son-in-law  and  his  wife  are 
living  in  harmony,  and  there  is  nothing  to  show  any  estrangement 
between  the  father-in-law  and  the  son-in-law,  the  latter  would  stand 
in  the  same  relation,  so  far  as  concerns  the  present  question,  as 
would  the  daughter  herself.  It  is  without  doubt  true  that  the  dan- 
ger to  the  son-in-law,  and  the  consequent  grief  and  terror  of  the 
;  daughter,  would  act  upon  the  father's  heart  with  substantially  the 
same  force  as  if  the  daughter  herself  were  in  danger,  or,  at  least, 
nearly  so." 

We  think  the  learned  court  below  should  have  submitted  to  thep 
jury  with  proper  instructions  whether,  owing  to  the  relationship  of 
the  parties  and  the  circumstances  disclosed  by  the  testimony,  the 
bond  was  Mrs.  Bigham's  voluntary  act,  or  was  executed  under1 
threats  of  prosecution  of  her  son-in-law  which  deprived  her  of  the 
exercise  of  her  free  will.  The  eighteenth  and  nineteenth  assign- 
ments are  sustained. 

The  testimony,  the  exclusion  of  which  is  the  subject  of  the  third 
and  fourth  assignments,  should  have  been  admitted.  It  tended  to 
show,  as  disclosed  by  the  offers,  that  the  threats  "were  part  of  a 
system  of  threats  and  coercion  brought  to  bear  upon  different  mem- 
bers of  the  families  of  both  defendants  for  the  purpose  of  inducing 
the  signing  of  the  bond"  and  "were  communicated  to  her  (Mrs. 
Bigham)  and  were  the  inducing  cause  of  her  signing  this  bond,  and 


SURETYSHIP   OBTAINED   BY    FRAUD  73 

was  the  only  consideration  therefor."  If  threats  were  made  for  the 
purpose  stated,  although  not  in  her  presence  hut  with  the  intention 
thaTtTTey  should  be  communicated  by  others  to  Mrs.  Bigham  for  the 
purpose  of  coercing  her  into  signing  the  bond,  it  was  competent  to 
show  the  threats,  that  they  were  communicated  to  her,  and  what,  if 
any,  effect  they  had  in  inducing  her  to  sign  the  bond :  Ditto  v. 
Slaughter  (Ky.),  92  S.  W.  Repr.  2;  Schultz  v.  Catlin,  78  Wis.  611  ; 
Snyder  v.  Wiley,  33  Mich.  483.  Moyer  v.  Dodson,  212  Pa.  344,  did 
not  warrant  the  exclusion  of  the  above  offers  of  evidence.  In  that 
case,  a  scire  facias  on  a  mortgage,  the  defendant  executed  the  mort- 
gage after  being  examined  separate  and  apart  from  her  husband  and 
the  officer  certified  that  she  signed  the  instrument  of  her  own  free 
will,  and  it  was  conceded  that  the  mortgagee  made  no  threats  to  the 
defendant,  did  not  authorize  them  to  be  communicated  or  knew  that 
they  would  be  communicated  to  her,  was  not  present  if  they  were 
made  to  her,  and  did  not  know  when  he  accepted  the  mortgage  that 
they  had  been  communicated  to  her. 

The  judgment  is  reversed  with  a  venire  de  novo. 

Accord :   Osborn  v.  Robbins,  36  N.  Y.  365. 

Likewise  fraud  practiced  upon  the  principal  by  the  creditor  will  discharge 
the  surety.  Bennett  v.  Carey,  72  Iowa  476,  34  N.  W.  291 ;  Hazard  v.  Irwin,  18 
Pick.  (Mass.)  95;  Putnam  v.  Schuyler,  4  Hun  166;  Macey  &c.  Co.  v.  Heger, 
195  Pa.  St.  125. 

It  has  been  held,  however,  that  the  surety  can  not  avail  himself  of  this  de- 
fense in  the  absence  of  proof  that  the  principal  has  repudiated  the  contract. 
Walker  v.  Gilbert,  7  Sm.  &  M.  (Miss.)  456;  Brown,  Slater  v.  Wright,  7  T.  B. 
Mon.  (Ky.)  396,  18  Am.  Dec.  190. 


SECTION  6.    CONTRACT  OF  SURETYSHIP  OBTAINED 

BY  FRAUD,  MISREPRESENTATION   OR 

CONCEALMENT 

JOHN  PIDCOCK  ET  AL.  v.  SAMUEL  BISHOP 


3  Barn.  &  Cress.  605  (1825). 

Assumpsit  by  the  plaintiffs,  manufacturers  of  pig  iron  at  Light- 
moor,  in  the  county  of  Salop,  against  the  defendant,  a  dealer  in  iron 
at  Bankside,  London,  upon  his~guarantee.  The  guarantee  declared 
upon  was  contained  in  a  letter  of  the  16th  of  December,  1S22,  ad- 
dressed by  the  defendant  to  the  plaintiffs,  and  was  as  follows : 
i  "At  the  request  of  Mr.  Thomas  Tickell,  I  beg  to  inform  you  that 
I  will  guaranty  you  in  the  payment  of  £200  value  to  be  delivered 
to  him  in  Lightmoor  pig  iron." 

At  the  trial  before  Hullock,  B.,  at  the  Warwick  Lent  Assizes  1842, 
it  was  proved,  on  the  part  of  the  plaintiffs,  that  the  defendant  gave 


74  THE    CONTRACT 

the  above-  mentioned  guarantee,  and  that  in  February,  1823,  the 
plaintiffs  supplied  to  Tickell  twenty  tons  of  Lightmoor  pig  iron  of 
the  value  and  price  of  £82  10s.,  that  they  had  applied  to  him  for  pay- 
ment, but  he  was  unable  to  pay  any  part  of  the  money.  On  the  part 
of  the  defendant,  Tickell  proved  that  he  had  formerly  been  in  the 
iron  trade,  but  had  become  bankrupt  some  time  before  the  trans- 
action out  of  which  the  action  arose ;  that  in  the  beginning  of  De- 
cember, 1822,  he  applied  to  John  Pidcock,  one  of  the  plaintiffs  (who 
managed  the  business  at  the  Lightmoor  works),  to  supply  him  with 
Lightmoor  pig  iron  on  credit  in  the  usual  way,  and  told  him  that  if 
the  company  would  supply  him,  he  would  pay  him  (John  Pidcock) 
ten  shillings  (beyond  the  price  to  be  paid  to  the  company)  or  every 
ton  of  iron  supplied  to  him,  and  which  ten  shillings  was  to  go  to- 
ward the  liquidation  of  an  old  debt  due  from  Tickell  to  John  Pid- 
cock. John  Pidcock  said  he  must  consult  his  partners,  but  that  he 
thought  they  would  not  consent  to  supply  the  iron  without  guarantee. 
It  was  afterwards  agreed  between  Tickell  and  John  Pidcock  that  the 
iron  should  be  supplied,  Tickell  paying  the  company  the  market  price, 
and  ten  shillings  per  ton  extra  to  John  Pidcock  in  liquidation  of  his 
private  debt,  and  also  procuring  a  satisfactory  guarantee  for  the 
price  of  the  iron.  Tickell  accordingly  applied  to  the  defendant,  who 
gave  the  guarantee,  but  the  agreement  he  had  entered  into  with  John 
Pidcock  for  the  payment  of  the  extra  ten  shillings  per  ton  was  not 
communicated  to  the  defendant.  A  bill  of  parcels  was  sent  with  the 
iron,  as  follows : 

"To  20  tons  of  Lightmoor  pig  iron £82  10s.  to  Mr.  Pidcock 

Debt 10     0 


Total £92  10s." 

On  the  part  of  the  defendant  it  was  contended  that  the  agreement 
as  to  the  payment  of  the  ten  shillings  per  ton  was  a  fraud  upon  the 
defendant,  and  that  he  consequently  was  not  liable  upon  his  guar- 
antee. Hullock,  B.,  thought  this  no  answer  to  the  action,  and  a  vev-j 
diet  found  for  the  plaintiffs  for  £82  10s.,  but  liberty  was  given  t< 
the  defendant  to  move  to  enter  a  nonsuit. 

In  the  following  Easter  term  Denman  obtained  a  rule  to  show 
cause  why  the  verdict  should  not  be  set  aside  and  a  nonsuit  entered. 

Abbott  C.  J. :  I  am  of  the  opinion  that  a  party  giving  a  guarantee 
ought  to  be  informed  of  any  private  bargain  made  between  the  ven- 
')  dor  and  vendee  of  goods  which  may  have  the  effect  of  varying  the 
degree  of  his  responsibility. ;  Here  the  bargain  was  that  the  vendee 
liould  pay,  beyond  the  market  price  of  the  goods  supplied  to  him, 
ten  shillings  per  ton,  which  was  to  be  applied  in  payment  of  an  old 
debt  due  to  one  of  the  plaintiffs.  The  effect  of  that  would  be  to 
compel  the  vendor  to  appropriate  to  the  payment  of  the  old  debt, 
a  portion  of  these  funds  which  the  surety  might  reasonably  suppose 


\% 


SURETYSHIP   OBTAINED   BY   FRAUD  75 

would  go  toward  defraying  the  debt  for  the  payment  of  which  he 
made  himself  collaterally  responsible.  Such  a  bargain,  therefore, 
increased  his  responsibility.  That  being  so,  I  am  of  opinion  that  the 
withholding  the  knowledge  of  that  bargain  from  the  defendant  was 
a  fraud  upon  him,  and  vitiated  the  contract. 

Bayley,  J. :  It  is  the  duty  of  a  party  taking  a  guarantee  to  put  the  7 
surety  in  possession  of  all  the  facts  likely  to  affect  the  degree  of  his_' 
responsibility;  and  if  he  neglect  to  do  so,  it  is  at  his  peril.  It  is 
highly  probable  that  J.  Pidcock  proved  his  debt  under  the  commis- 
sion against  Tickell,  although  that  does  not  appear  on  the  evidence ; 
but,  however,  that  may  be,  the  question  in  this  case  depends  upon  the 
nature  of  the  bargain  between  Tickell  and  J.  Pidcock.  The  defend- 
ant might  reasonably  suppose  that  the  iron  was  to  be  supplied  to 
Tickell  at  the  market  price,  but  by  the  bargain  Tickell  was  to  pay, 
beyond  the  market  price  of  the  iron,  ten  shillings  per  ton  to  J.  Pid- 
cock, in  discharge  of  an  old  debt  due  to  him.  Now  if  the  plaintiff 
had  apprized  the  defendant  that  there  was  such  a  subsisting  bargain, 
he  would  have  known  that  Tickell  would  not  be  able  to  pay  for  so 
much  of  the  iron  as  he  otherwise  might  have  done,  and  might  have 
declined  entering  into  the  guarantee.  He  gave  the  guarantee  under 
a_supposit_ion.that  Tickell  would  be  at  liberty  to  apply  all  his  funds, 
except  what  were  necessary  for  his  support,  toward  payment  of 
the  iron  supplied  at  the  regular  market  price,  whereas  the  plaintill 
when  he  accepted  the  guarantee  knew  that  Tickell  was  to  pay  him 
not  only  the  market  price  of  the  iron,  but  ten  shillings  per  ton  on 
the  iron  provided,  in  extinction  of  an  old  debt.  The  concealment  of 
:hat  fact  from  the  knowledge  of  the  defendant  was  a  fraud  upon 
im,  and  avoids  this  contract.  Where  by  a  composition  deed  the 
reditors  agree  to  take  a  certain  sum  in  full  discharge  of  their  re- 
ipective  debts,  a  secret  agreement,  by  which  the  debtor  stipulates 
with  one  of  the  creditors  to  pay  him  a  larger  sum,  is  void,  upon  the 
ground  that  that  agreement  is  a  fraud  upon  the  rest  of  the  cred- 
itors.* So  that  a  contract  which  is  a  fraud  upon  a  third  person  may, 
""on  that  account,  be  void  as  between  the  parties  to  it.  Here  Jdie  con- 
tract to  guaranty  is  void,  because  a  fact  materially  affecting  the  na- 
ture of  the  obligation  created  by  the  contract  was  not  communi- 
cated to  the  surety. f 

*Cf.  Powers  Dry  Goods  Co.  v.  Harlin,  68  Minn.  193,  71  N.  W.  16,  64  Am. 
St.  460. 
fHolroyd,  J.,  and  Littledale,  J.,  rendered  concurring  opinions. 


< 


76  THE    CONTRACT 

EDWARD  RAILTON  v.  THOMAS  G.  MATHEWS  ET  AL. 

10  CI.  &  Fin.  934  (1844). 

The  respondents,  Mathews  and  Leonard,  carried  on  business  in 
partnership  at  Bristol ;  their  business  extended  to  Scotland,  and  was 
conducted  by  their  agents  in  Glasgow.  Messrs.  Rowley  and  Hickes 
acted  as  such  agents  from  January,  1832,  to  February,  1834,  when 
they  dissolved  partnership,  and  it  became  necessary  for  the  respon- 


dents to  make  a  new  appointment  of  agency.  Hickes  and  Rowley 
then  severally  applied  for  the  appointment™  The  respondentsgaye 
iLto  jjjckes.    The  appointment  was  by  letter,  dated  Bristol,  25  Jan- 


uary, 1834,  in  these  terms :  "Sir, — We  appoint  you  as  our  agent  for 
the  sale  of  dye  wares,  and  to  collect  all  our  moneys ;  you  finding  us 
security  for  £3,000,  as  proposed." 

Hickes,  upon  being  so  appointed,  entered  upon  the  agency,  or 
rather  continued  the  agency  held  before  by  him  and  Rowley.  Be- 
ing afterwards  required  by  the  respondents  to  find  the  security,  he 
proposed  his  brother,  who  resided  in  England,  and  the  appellant, 
who  was  a  writer  in  Glasgow.  The  respondents  agreed  to  accept 
the  proposed  sureties  without  any  communication  with  either  -ei, 
them ;  and  the  necessary  bond  having  been  prepared  and  transmitted 
to  the  agent,  was  subscribed  by  him  and  by  the  appellant  at  Glasgow 
in  September,  and  by  the  other  surety  in  October,  1835.  The  bond 
was  in  the  English  form,  and  in  the  penal  sum  of  £4,000,  condi- 
tioned that  the  agent  should  faithfully  conduct  himself  as  the  clerk 
and  commission  agent  of  the  respondents,  and  satisfactorily  account 
to  them  for  all  moneys  received  on  their  account. 

In  May,  1837,  the  respondents  discovered  that  Hickes  had  acted 
unfaithfully  in  the  agency,  and  had  contrived  to  apply  their  moneys 
to  his  own  use  to  a  large  amount.  They  gave  notice  of  this  dis- 
covery to  the  sureties ;  and  subsequently,  by  the  third  respondent, 
their  mandatory  in  Scotland,  raised  an  action  against  all  the  obligors 
in  the  bond,  concluding  for  count  and  reckoning  of  the  whole  of  the 
agent's  actions,  and  for  payment  of  the  £4,000,  or  such  part  thereof 
as  might  be  found  to  be  due  by  the  agent. 

The  appellant  alone  defended  the  action ;  but  before  any  final 
judgment  was  pronounced,  he  raised  an  action  against  the  respon- 
dents for  reduction  of  the  bond,  upon  various  grounds,  principally 
on  this :  "That  the  bond  was  obtained  fraudulently  by  the  respon- 
dents, and  on  the  procurement  thereof  they  were  guilty  of  a  fraudu- 
lent concealment  of  material  circumstances  known  to  them,  and  deep- 
ly affecting  the  credit  and  trustworthiness  of  the  said  Hickes."  The 
libel  then,  after  stating  various  circumstances  importing  the  respon- 
dents' knowledge  of  Hickes'  misconduct  and  irregularities  in  the 
agency  during  the  period  of  his  partnership  with  Rowley,  summed 


SURETYSHIP   OBTAINED   BY    FRAUD  77. 

up  the  whole  statement  to  this  effect :  That  although  at  and  prior  to 
the  time  of  receiving  the  bond,  the  respondents  had  been  made  ac- 
quainted with  the  misconduct  of  Hickes  in  misapplying  the  funds  of 
the  firm  of  Rowley  &  Hickes  to  his  own  private  purposes ;  and  al- 
though, from  their  own  experience  of  his  gross  irregularities  under 
the  agency,  they  were  perfectly  aware  that  he  was  unworthy  of 
H  trust,  they  totally  failed  to  communicate  (to  the  sureties)  the  said 
circumstances  or  either  of  them  or  the  existence  of  any  balance  on 
the  agency  accounts  then  standing  against  Hickes ;  on  the  contrary, 
while  they  accepted  and  took  possession  of  the  bond,  they  fraudu- 
lently suppressed  and  concealed  the  said  whole  facts  and  circum- 
stances regarding  the  conduct  and  irregularities  of  Hickes,  and  the 
state  of  his  accounts,  which  circumstances  were- wholly  unknown  to 
the  appellant,  and  the  respondents,  by  their  whole  conduct  in  the 
premises,  deceived  and  misled  the  appellant  into  the  belief  that 
Hickes  was  in  every  respect  trustworthy,  while  they  well  knew  the 
reverse ;  whereby  the  bond  was  obtained  by  them  through  fraud  and 
deceit;  and  the  undue  concealment  of  material  facts,  which  they 
knew,  if  communicated,  would  have  prevented  the  appellant  from 
undertaking  the  said  obligation  or  subscribing  the  bond ,  or  the  re- 
spondents were  guilty  of  fraudulent  concealment  of  material  cir- 
cumstances in  obtaining  the  bond,  and  the  same  was  therefore  null 
and  void. 

Lord  (Tottenham  :  Entertaining  an  opinion  against  the  judgment 
pronounced  in  the  court  below,  if  I  had  felt  any  doubt  upon  the  sub- 
ject, or  had  considered  it  a  case  which  required  more  investigation 
of  the  facts  than  it  has  received,  I  certainly  should  have  been  un- 
willing to  dispose  of  it  without  taking  time  for  further  considera- 
tion ;  but  the  facts  are  so  simple,  and  the  points  are  so  free  from 
doubt,  that  I  see  no  reason  why  the  house  should  not  at  once  dis- 
pose of  the  case. 

The  real  question  is,  whether  the  way  in  which  the  learned  judge 
put  this  case  to  the  jury,  and  described  to  them  the  duty  they  had  to 
perform,  was  or  was  not  consistent  with  and  properly  applicable  to  / 
the  issue  raised  for  their  consideration.  The  issue,  in  my  opinion, 
very  clearly  describes  the  point  which  the  court  wished  to  have  in- 
vestigated. The  terms  of  the  issue  must,  of  course,  be  construed  as 
they  stand ;  but  it  is  not  immaterial  to  look  to  the  points  raised  in 
the  pleadings,  for  the  purpose  of  construction.  If  there  were  any 
doubt  upon  the  meaning  of  the  terms  used,  I  would  look  to  the  sum- 
mons for  reduction  of  the  instrument  of  suretyship;  and  I  find  sev-  1 
eral  facts  appearing,  as  having  passed  between  the  party  who  was 
the  subject  of  the  suretyship  and  those  by  whom  he  had  been  pre- 
viously employed  ;  and  I  find  the  matter  stated  in  these  terms :  "That 
the  parties  totally  failed  to  communicate  the  said  circumstances,  or 
either  of  them,  or  the  existence  of  any  balance  on  the  agency  ac- 
count then  standing  against  the  said  George  Hickes,  to  the  pursuer 


/o  THE    CONTRACT 

or  to  the  said  Henry  Williams  Hickes ;  and  on  the  contrary,  while 
they  accepted  and  took  possession  of  the  said  bond,  they  fraudu- 
lently suppressed  and  concealed  the  said  whole  facts  and  circum- 
stances regarding  the  conduct  and  irregularities  of  the  said  George 
Hickes,"  etc. 

There  is  an  imputation  made  of  direct  fraud,  a  fraudulent  inten- 
tion influencing  the  acts  of  the  parties,  and  there  is  a  direct  state- 
ment of  such  concealment. 

It  has  not  been  contended,  and  it  is  impossible  to  contend,  after 
what  Lord  Eldon  jays  down  in  the  case  of  Smith  v.  The  Bank  of 
Scotland,  1  Dow  272,  that  a  case  may  not  exist  in  which  a  mere  non- 
communication would  invalidate  a  bond  of  suretyship.  Lord  Eldon 
states  various  cases  in  which  a  party  about  to  become  surety  would 
have  a  right  to  have  communicated  to  him  circumstances  within  the 
knowledge  of  the  party  acquiring  the  bond ;  and  he  states  that  it  is 
the  duty  of  the  party  acquiring  the  bond  to  communicate  those  cir- 
cumstances, and  that  the  noncommunication,  or,  as  he  uses  the  ex- 
pression, the  concealment  of  those  facts  would  invalidate  the  ob- 
ligation and  release  the  surety  from  the  obligation  into  which  he 
had  entered. 

Now,  when  the  issue  in  this  case  was  tried,  such  being  the  points 
raised  between  the  parties,  we  have  nothing  to  do  with  the  evidence 
in  the  cause,  or  the  facts  proved,  or  the  conclusion  to  which  the 
jury  might  or  might  not  have  come  under  the  circumstances,  but 
with  the  question  whether  the  charge  which  was  made  to  them  was 
such  a  charge  as  we  conceive  ought  to  have  been  made  to  them. 
The  issue  for  their  consideration  was,  as  a  matter  of  fact,  "whether 
the  pursuer,  Edward  Railton,  was  induced  to  subscribe  the  bond  of 
caution  or  surety  by  undue  concealment  or  deception  on  the  part  of 
the  defenders,  or  either  of  them ;"  raising  these  two  propositions 
which  were  raised  in  the  pleadings  in  the  cause,  either  of  which,  if 
found  in  the  affirmative,  would  lead  to  the  conclusion  of  the  cause. 

The  question — looking  at  the  terms  in  which  the  matter  was  left 
to  the  jury,  and  the  mode  in  which  the  learned  judge  informed  the 
jury  they  ought  to  perform  their  duty — is  whether  there  may  not 
have  been  a  case  brought  before  the  jury  for  their  consideration  of 
improper  and  undue  concealment  (which  I  understand  to  mean  a 
noncommunication  of  facts  which  ought  to  have  been  communi- 
cated), which  would  lead  to  the  relief  of  the  surety,  although  the 
noncommunication  might  not  be  wilful  and  intentional,  and  with 
a  view  to  the  advantage  which  the  party  was  thereby  to  receive. 
That  which  I  find  here  extracted  from  the  charge  of  the  learned 
judge  I  understand  to  be  one  proposition.  The  learned  judge  lays  it 
down  distinctly  that  the  concealment,  to  be  undue,  must  be  wilful 
and  intentional,  with  a  view  to  the  advantage  they  were  thereby  to 
receive.  In  my  opinion  there  may  be  a  case  of  improper  conceal- 
ment or  noncommunication  of  facts  which  ought  to  be  communi- 


SURETYSHIP    OBTAINED    BY    FRAUD 


79 


cated,  which  would  affect  the  situation  of  the  parties,  even  if  it  was 
not  wilful  and  intentional,  and  with  a  view  to  the  advantage  the 
parties  were  to  receive.  The  charge,  therefore,  I  conceive,  was  not 
consistent  with  the  rule  of  law ;  I  think  that  it  narrowed  the  question 
for  the  consideration  of  the  jury  beyond  the  limits  which  the  rights 
of  the  parties  required  to  have  submitted  to  the  consideration  of  the 
jury. 

Without  going  further  into  the  law  which  regulates  the  rights  of 
these  parties  than  that  which  was  stated  by  Lord  Eldon  in  Smith  v. 
The  Bank  of  Scotland,  we  find  that  in  a  judgment  of  this  house  in 
the  case  of  an  appeal  from  Scotland,  and  therefore  one  peculiarly 
valuable  in  the  case  now  under  consideration,  that  has  been  declared 
to  be  the  law.  The  terms  used  by  the  learned  judge  in  directing  the 
jury  having  limited  the  question  for  their  consideration  much  more 
than  the  rule  of  law  would  justify,  it  appears  to  be  quite  clear  that 
this  case  has  not  been  properly  tried,  that  the  exceptions  were  prop- 
erly taken,  and  that  this  house  is  bound  to  pronounce  such  a  judg- 
ment as  ought  to  have  been  pronounced  by  the  court  of  session. 

Lord  Campbell  :  This  case  has  been  very  satisfactorily  argued 
on  both  sides ;  with  great  brevity,  but  everything  has  been  argued 
which  could  be  for  the  advantage  of  the  clients  or  the  assistance  of 
your  lordships ;  and  having  listened  to  all  which  has  been  urged  on 
both  sides  very  attentively,  I,  without  the  smallest  hesitation,  come 
to  the  conclusion  that  the  bill  of  exceptions  ought  to  be  allowed,  and 
that  there  must  be  a  new  trial. 

'  The  question  really  is,  What  is  the  issue  which  the  court  directed 
in  this  case?  "Whether  the  pursuer,  Edward  Railton,  was  induced 
to  subscribe  the  said  bond  of  caution  or  surety  by  undue  conceal- 
ment or  deception  on  the  part  of  the  defenders,  or  either  of  them?" 
The  material  words  are,  "under  concealment  on  the  part  of  the  de- 
fenders." What  is  the  meaning  of  those  words?  I  apprehend  the 
meaning  of  those  words  is,  whether  Railton  was  induced  to  sub- 
scribe the  bond  by  the  defenders  having  omitted  to  divulge  facts 
within  their  knowledge  which  they  were  bound  in  point  of  law  to 
divulge.  If  there  were  facts  within  their  knowledge  which  they  were 
bound  in  point  of  law  to  divulge,  and  which  they  did  not  divulge, 
the  surety  is  not  bound  by  the  bond  ;  there  are  plenty  of  decisions  to 
that  effect,  both  in  the  law  of  Scotland  and  the  law  of  England.  If 
the  defenders  had  facts  within  their  knowledge  which  it  was  material 
the  surety  should  be  acquainted  with,  and  which  the  defenders  did 
not  disclose,  in  my  opinion  the  concealment  of  those  faefs,  the  un- 
due concealment  of  those  facts,  discharges  the  surety-fand  whether 
they  concealed  those  facts  from  one  motive  or  another,  I  apprehend 
is  wholly  immaterial.  It  certainly  is  wholly  immaterial  to  the  interest 
oTlhe  surety,  because  to  say  that  his  obligations  shall  depend  upon 
that  which  was  passing  in  the  mind  of  the  party  requiring  the  bond 
appears  to  me  preposterous;  for  that  would  make  the  obligation  of 


80  THE    CONTRACT 

the  surety  depend  on  whether  the  other  party  had  a  good  memory, 
or  whether  he  was  a  person  of  good  sense,  or  whether  he  had  the 
motive  in  his  mind,  or  whether  he  was  aware  that  those  facts  ought 
to  be  disclosed.  The  liability  of  a  surety  must  depend  upon  the  situ- 
ation in  which  he  is  placed,  upon  the  knowledge  which  is  communi- 
cated to  him  of  the  facts  of  the  case,  and  not  upon  what  was  pass- 
ing in  the  mind  of  the  other  party,  or  the  motive  of  the  other  party. 
If  the  facts  were  such  as  ought  to  have  been  communicated,  if  it 
was  material  to  the  surety  that  they  should  be  communicated,  the 
motive  for  withholding  them,  I  apprehend,  is  wholly  immaterial. 

Then  we  come  to  the  direction  given  by  the  learned  judge.  He 
says:  "The  concealment,  therefore,  being  undue,  must  be  wilful 
and  intentional  with  a  view"  (and  that  is  with  reference  to  the  mo- 
tive) "to  the  advantage  they  were  thereby  to  receive."  Now,  ac- 
cording to  my  notion  of  the  issue,  that  is  an  entire  misconception 
of  it ;  according  to  this  direction,  although  the  parties  acquiring  the 
bond  had  been  aware  of  the  most  material  facts  which  it  was  their 
duty  to  disclose,  and  the  withholding  of  which  would  avoid  the 
bond,  if  they  did  not  wilfully  and  intentionally  withhold  them,  that 
is  to  say  if  they  had  forgotten  them  or  if  they  thought  by  mistake 
that  in  point  of  law  or  morality  they  were  not  bound  to  disclose 
them,  then,  according  to  the  holding  of  the  learned  judge,  it  would 
not  be  a  concealment.  But  the  learned  judge  does  not  stop  there; 
he  goes  on.  "with  a  view  to  the  advantage  they  were  thereby  to 
receive,"  introducing  those  words  conjunctively,  and  in  effect,  say- 
ing that  it  was  not  an  undue  concealment  unless  they  had  their  own 
particular  advantage  in  view.  That  appears  to  me  a  misconception. 
I  will  suppose  that  their  motive  was  kindness  to  Hickes ;  to  keep 
|  back  from  those  who,  it  was  material  to  him,  should  continue  to 
have  a  good  opinion  of  him,  the  knowledge  of  those  facts ;  that  it 
was  a  pure  kindness  on  their  part,  to  prevent  those  parties  enter- 
taining a  bad  opinion  of  him,  and  not  from  any  selfishness,  this  con- 
cealment .took  place.  Although  that  might  be  the  motive,  yet  the 
fact  that  he  was  in  arrear  and  had  been  guilty  of  fraudulent  con- 
duct, and  that  he  was  a  defaulter,  were  facts  which  it  was  most 
material  for  the  surety  to  be  acquainted  with.  If  those  were  held 
back  merely  from  a  kind  motive  to  Hickes,  and  not  at  all  from  any 
selfish  motive  on  the  part  of  those  to  whom  the  bond  was  to  be  exe- 
cuted, the  effect  in  point  of  law  would  be  the  same  as  if  the  motive 
were  merely  the  personal  benefit  of  the  parties  to  receive  the  bond. 
ft  appears  to  me,  therefore,  that  the  learned  judge  has  misunder- 
stood the  meaning  of  the  issue,  and  that  having  told  the  jury  that  a 
concealment  to  be  undue  must  be  wilful  and  intentional  with  a  view 
to  the  advantage  which  the  parties  were  thereby  to  receive,  that  was 
a  misdirection,  and  that  it  had  a  tendency  to  mislead  the  jury ;  that 
it  was  wrong  in  point  of  law,  and  that  the  exception  to  that  direction 
oujjht  to  be  allowed. 


SURETYSHIP    OBTAINED    BY    FRAUD  81 

Interlocutor  complained  of  reversed ;  bill  of  exceptions  allowed ; 
and  a  new  trial  directed. 

See  also  Hamilton  v.  Watson,  12  CI.  &  Fin.  108  (1845)  ;  Lee  v.  Jones,  17  C. 
B.  (N.  S.)  482  (1864). 


LONDON  GENERAL  OMNIBUS  COMPANY,  LIMITED,^ 
v.  HOLLOWAY 

2  K.  B.  73  (1912) 

In  the  Court  of  Appeal. 

Appeal  from  the  judgment  of  Lord  Alverstone,  C.  J.,  in  an  action 
tried  by  him  without  a  jury,  as  a/fter  mentioned. 

Th^_a^tiojT_wa^upon a^cnd^/given  by  the  defendant  to  the  plain- 
tiffs, which  purported  to  make  the  defendant  responsible  as  a  surety 
for"  the  honest  and  faithful  discharge  by  one^Lee,  a  clerk  in  the 
plaintiffs'  service,  of  his  duties  as  such  clerkx 

In  or  about  1903  Lee  entered  into  the  service  of  the  plaintiffs  as 
a  clerk.  The  plaintiffs'  practice  in  the  case  of  employes  who  had  to 
'  receive  money  for  them,  as  Lee  had,  was  to  require  a  bond  by  the 
employe  and  a  surety  to  secure  the  fidelity  of  the  employe.  In  the 
case  of  Lee  by  some  accident  no  such  bond  was  required  upon  his 
entering  the  plaintiffs'  service.  In  1905  it  was  discovered  by  the 
plaintiffs  that  Lee  had  misappropriated  money  received  by  him  on 
the  plaintiffs'  behalf  to  the  extent  of  £29.  The  sum  so  misappro- 
priated was  made  good  by  some  relatives  of  Lee  other  than  the  de- 
fendant. As  a  condition  of  retaining  Lee  in  their  service,  the  plain- 
tTfFssubsequently  required  a  bond  by  himself  and  a  surety  to  secure 
the  honest  and  faithful  discharge  by  him  of  his  duties,  and  they  gave 
him  a  form  of  bond  for  execution  by  himself  and  his  surety.  Lee 
accordingly  procured  the  signature  by  the  defendant,  who  was  a 
relative  of  his,  of  the  bond  sued  upon,  by  which,  after  reciting,  inter 
alia,  thaL"  at  the  request  of  the  plaintiffs  and  Lee,  the  defendant  had 
agreed  to  concur  in  the  bond  by  way  of  security  for  the  honest  and 
faithful  discharge  by  Lee  of  his  duties,  Lee  and  the  defendant  be- 
came bound  jointly  and  severally  to  the  plaintiffs  to  the  amount  of 
^(-#200  by  way  of  security  as  aforesaid.  This  bond  was  given  in  1905. 
..'/The  plaintiffs  did  not,  before  the  bond  was  given,  inform  the  de- 
fendant of  Lee's  previous  defalcations,  and  the  defendant  did  not, 
uwhen  he  signed  the  bond,  know  of  the  same.  In  1909  it  was  discov- 
ered that  Lee  had  subsequently  misappropriated  money  received  by 
him  on  behalf  of  the  company  to  the  extent_of  at  least  £100,  and  the 
|  plaintiffs  thereupon  brought  their  action  upon  the  bond  against  the 
■  defendant  in  respect  of  the  amount  so  misappropriated.  The  case 
6 — De  Witt. 


S2  THE    CONTRACT 

came  on  for  trial  before  the  lord  chief  justice  and  a  jury,  but,  after 
the  facts  had  been  proved  as  above  mentioned,  it  was  agreed  that 
the  jury  should  be  discharged  without  giving  a  verdict  and  the  lord 
chief  justice  should  deal  with  the  case  on  further  consideration. 
The  lord  chief  justice  on  further  consideration  found  that_the  non-J 
disclosure  of  Lee's  previous  dishonesty  by  the  plaintiffs  constituted 
a  good  defense  to  the  action  on  the  bond 

Vaughn  Williams,  L.  J.:  Read  the  following  judgment:  This 
is  an  appeal  by  the  plaintiffs,  the  London  General  Omnibus  Com- 
pany, against  the  judgment  of  the  Lord  Chief  Justice  without  a 
jury.  The  jury  were  in  fact  sworn,  and  heard  all  the  evidence.  The 
Lord  Chief  Justice  then  said  to  Mr.  Salter,  the  counsel  for  the 
plaintiffs :  "Now,  Mr.  Salter,  are  you  going  to  ask  the  jury  to  dis- 
believe this  gentleman  ?"  The  witness  was  the  defendant,  Mr.  Hol- 
loway,  and  he  had  sworn  that,  when  he  signed  the  bond  sued  on,  he 
had  no  idea  that  there  was  any  previous  misconduct  by  the  clerk 
in  respect  of  whose  fidelity  he,  as  a  surety,  executed  the  bond.  Mr. 
Salter  answered :  "I  am  going  to  submit  that  there  was  no  duty 
to  disclose,  and  next  I  am  going  to  submit  that  there  was  no  evi- 
dence of  overlooking  any  defalcation  subsequently  to  the  deed." 
The  Lord  Chief  Justice  then  said :  "There  is  no  evidence  of  any 
overlooking.  I  see  nothing  to  be  left  to  the  jury."  Mr.  Clavell 
Salter  answered :  "Then  the  question  whether  the  bond  stands,  I 
submit,  is  a  question  for  your  lordship.  There  was  no  disclosure. 
If  there  was  a  duty  to  state  it"  (i.  e.,  the  defalcation  of  the  clerk  to 
the  knowledge  of  the  plaintiffs  prior  to  the  execution  of  the  bond) 
"then  the  duty  was  not  discharged."  The  Lord  Chief  Justice  found 
distinctly  that  there  was  no  fraud  on  the  part  of  the  plaintiffs. 

It  follows  that  the  only  question  we  have  to  decide  is  whether,  in 
the  absence  of  fraud  on  the  part  of  the  person  taking  the  security, 
nondisclosure  by  him  of  any,  and,  if  so,  what  fact  within  his  knowl- 
edge, material  for  the  surety  to  know,  will  vitiate  the  bond.  It  was 
suggested  during  the  argument  that,  although  it  may  be  true  that, 
generally,  it  is  not  good  law,  except  in  the  case  of  policies  of  insur- 
ance, to  say  that  the  nondisclosure  of  a  fact  within  the  knowledge  of 
the  person  taking  the  security,  material  for  the  surety  to  know  will 
vitiate  the  security,  yet  it  may  be  good  law  in  a  case  where  the  non- 
disclosed  fact  is  of  such  a  character  that  the  tribunal  before  which 
the  question  of  the  vitiation  of  the  bond  comes  is  of  opinion  that 
the  nondisclosure  constitutes  a  misrepresentation  by  reason  of  the 
nondisclosed  fact  being  inconsistent  with  a  presumed  basis  of  the 
contract  of  suretyship,  e.  g.,  that  the  clerk  whose  fidelity  or  honesty 
is  the  subject  of  the  security  has  not,  to  the  knowledge  of  the  person 
taking  such  guarantee,  been  guilty  of  a  breach  of  honesty  in  the  per- 
formance of  the  duties  of  the  very  office  or  service,  fidelity  and 
honesty  in  which  is  guaranteed.  If,  for  instance,  the  servant  whose 
fidelity  is  the  subject  of  the  security  is,  as  he  was  in  this  case^  a  clerk 


SURETYSHIP    OBTAINED    BY    FRAUD 


83 


who  has  to  collect  and  pay  over  money,  Jt  is  assumed  by  both  parties 
to  an  ordinary  contract  of  suretyship  that  such  a  servant  is  not  to 
theJiiiOAvJedge  of  the  master  a  man  who  has  been  guilty  of  dishonest 
d^aJing_,with_jrioneys  collected  by  him.  Not  to  disclose  such  dishon- 
esty is  a  misrepresentation,  it  may  be  innocently  made,  but  still  is  a 
misrepresentation,  because  by  nondisclosure  the  master  must  be  as- 
sumed to  be  contracting  on  the  assumption  which  I  have  just  men- 
tioned, i.  e.,  the  assumption  by  both  parties  to  a  contract  of  surety- 
ship in  respect  of  the  service  of  such  a?  servant  that  the  suretyship 
relates  to  a  servant  whom  the  master  at  the  time  of  taking  the  se- 
curity does  not  know  to  have  been  guilty  of  dishonesty  in  such  ser- 
vice, that  is  to  a  presumably  honest  man,  and  not  a  man  known  to 
be  dishonest.  I  do  not  think  that  the  importance  of  the  nondisclosed 
fact  in  regard  to  the  duties  the  subject  of  the  suretyship  is  necessa- 
rily a  mere  question  of  law;  it  may  be  a  question  of  fact  to  be 
decided  by  a  jury  or  judge  sitting  alone.  The  question  for  judge  or 
jury  to  put  to  himself  or  themselves  seems  to  be,  "Would  the  surety 
have  entered  into  this  contract  of  suretyship  if  the  nondisclosed  fact 
had  been  disclosed  to  him?" 

Blackburn,  J.,  in  Lee  v.  Jones  (17  C.  B.  (N.  S.)  482,  at  p.  506). 
says :  "I  think  that  it  must  in  every  case  depend  upon  the  nature  of 
the  transaction,  whether  the  fact  not  disclosed  is  such  that  it  is  im- 
pliedly represented  not  to  exist;  and  that  must  generally  be  a  ques- 
tion of  fact  proper  for  a  jury."  He  goes  on  to  deal  with  the  question 
whether  in  that  case  there  was  evidence  of  fraud  to  go  to  the  jury, 
but  I  do  not  regard  this  as  a  statement  that  nondisclosure  and  the 
misrepresentation  to  be  inferred  therefrom  must  be  fraudulent  to 
avoid  or  vitiate  a  contract  of  suretyship,  for  the  only  question  to  be 
dealt  with  in  that  case  was  on  the  leave  reserved  to  enter  a  verdict 
for  the  plaintiffs,  if  there  was  no  evidence  of  fraud  to  support  the 
defendant's  plea  of  fraud. 

In  fact,  in  many  of  the  common-law  cases  cited  before  us,  the 
only  question  was  whether  there  was  evidence  to  support  a  plea  of 
fraud,  and  not  whether  misrepresentation  inferred  from  nondis- 
closure would,  independently  of  fraud,  vitiate  a  contract  of  surety- 
ship. Again  in  Hamilton  v.  Watson  (12  CI.  &  F.  109,  at  p.  119) 
Lord  Campbell,  after  dissenting  from  the  proposition  of  the  appel- 
lant's counsel  that,  when  a  bank  takes  a  security  from  a  person  be- 
coming surety  for  one  of  its  customers,  the  managers  of  the  bank 
are  bound  to  communicate  to  the  proposed  surety  every  informa- 
tion which,  in  relation  to  the  suretyship,  it  may  be  material  for  him 
to  know,  and,  if  such  information  is  not  communicated,  the  surety 
is  released,  says,  "unless  questions  be  particularly  put  1>v  the  surety 
to  gain  this  information,  I  hold  that  it  is  quite  unnecessary  for  the 
creditor,  to  whom  the  suretyship  is  to  be  given,  to  make  any  such 
disclosure :  and  I  should  think  that  this  might  be  considered  as  the 
criterion    whether   the    disclosure    ought    to    be    made    voluntarily, 


\ju#<— -d 


84  THE   CONTRACT 

namely,  whether  there  is  anything  that  might  not  naturally  be  ex- 
pected to  take  place  between  the  parties  who  are  concerned  in  the 
transaction,  that  is,  whether  there  be  a  contract  between  the  debtor 
and  the  creditor,  to  the  effect  that  his  position  shall  be  different  from 
that  which  the  surety  might  naturally  expect :  and,  if  so,  the  surety 
is  to  see  whether  that  is  disclosed  to  him.  But  if  there  be  nothing 
which  might  not  naturally  take  place  between  these  parties,  then, 
if  the  surety  would  guard  against  particular  perils,  he  must  put  the 
question  and  he  must  gain,  the  information  which  he  requires." 
Lord  Campbell,  it  is  true,  takes  as  his  example  of  what  might  not 
be  naturally  expected  an  unusual  contract  between  creditor  and 
debtor  whose  debt  the  surety  guarantees,  but  I  take  it  this  is  only 
an  example  of  the  general  proposition  that  a  creditor  must  reveal 
to  the  surety  every  fact  which  under  the  circumstances  the  surety 
would  expect  not  to  exist,  for  the  omission  to  mention  that  such 
a  fact  does  exist  is  an  implied  representation  that  it  does  not.  Such 
a  concealment  is  frequently  described  as  "undue  concealment." 

I  have  dealt  with  these  cases  because  they  were  much  relied  on  by 
Mr.  Clavell  Salter,  but  the  most  important  case  on  the  subject  seems 
to  be  the  case  of  Railton  v.  Mathews  (10  CI.  &  F.  934)  in  the  House 
of  Lords.  In  that  case,  which  was  tried  in  Scotland  in  the  Scottish 
court,  the  presiding  judge  directed  the  jury  that  the  concealment 
to  be  undue  must  be  wilful  and  intentional,  with  a  view  to  the  ad- 
vantage the  employers  were  thereby  to  gain,  and  the  House  of 
Lords  held  that  the  direction  was  wrong  in  point  of  law,  and  that 
mere  noncommunication  of  circumstances  affecting  the  situation  of 
the  parties,  material  for  the  surety  to  be  acquainted  with,  and  within 
the  knowledge  of  the  person  taking  the  surety  bond,  is  undue  con- 
cealment, though  not  wilful  or  intentional,  or  with  a  view  to  any 
advantage  to  himself.  Lord  Cottenham  says  (10  CI.  &  F.  940)  :  "It 
has  not  been  contended,  and  it  is  impossible  to  contend,  after  what 
Lord  Eldon  lays  down  in  the  case  of  Smith  v.  Bank  of  Scotland 
(1  Dow  272,  at  p.  292),  that  a  case  may  not  exist  in  which  a  mere 
noncommunication  would  invalidate  a  bond  of  suretyship."  Lord 
Cottenham  then  continues  (10  CI.  &  F.  941)  :  "In  my  opinion  there 
may  be  a  case  of  improper  concealment  or  noncommunication  of 
facts  which  ought  to  be  communicated,  which  would  affect  the  sit- 
uation of  the  parties,  even  if  it  was  not  wilful  and  intentional,  and 
with  a  view  to  the  advantage  the  parties  were  to  receive."  Then  I 
find  (10  CI.  &  F.  943)  Lord  Campbell  saying:  "If  the  defenders 
had  facts  within  their  knowledge  which  it  was  material  the  surety  ] 
should  be  acquainted  with,  and  which  the  defenders  did  not  disclose,  | 
in  my  opinion  the  concealment  of  those  facts,  the  undue  concealment  \, 
of  those  facts,  discharges  the  surety ;"  and  later  he  says :  "The  Ha- 
bility  of  a  surety  must  depend  upon  the  situation  in  which  he  is 
placed,  upon  the  knowledge  which  is  communicated  to  him  of  the 


SURETYSHIP   OBTAINED   BY   FRAUD  85 

facts  of  the  case,  and  not  on  what  was  passing  in  the  mind  of  the 
other  party  or  the  motive  of  the  other  party.  If  the  facts  were  such 
as  ought  to  have  been  communicated,  if  it  was  material  to  the  surety 
that  they  should  be  communicated,  the  motive  for  withholding  them, 
I  apprehend,  is  wholly  immaterial."  I  see  no  reason  to  suppose  that 
Lord  Campbell  meant  any  different  materiality  from  that  which  I 
have  defined  earlier  in  my  judgment.  The  representation  to  be  im- 
plied from  the  noncommunication  must  relate  to  facts  which  the  per- 
son giving  the  security  had  a  right  to  suppose  to  exist. 

I  think  it  right  to  add  that  I  find  it  difficult  to  understand  that 
Pollock,  C.  B.,  in  North  British  Insurance  Co.  v.  Lloyd  (10  Exch. 
523,  at  p.  535)  means  when  he  is  dealing  with  Railton  v.  Mathews 
(10  CI.  &  F.  934)  and  Smith  v.  Bank  of  Scotland  (1  Dow  272), 
and  concludes  his  judgment  with  these  words :  "We  think  the  doc- 
trine laid  down  by  Lord  Campbell  perfectly  correct  and  applicable 
to  the  guarantee  in  question.  The  nondisclosure  of  the  circumstance 
of  the  change  of  security,  even  if  it  had  been  material,  would  not 
have  vitiated  the  guarantee,  unless  it  had  been  fraudulently  kept 
back,  and  there  was  no  ground  to  impute  fraud  in  fact  to  the  plain- 
tiffs or  their  agents." 

In  my  judgment,  the  judgment  of  the  Lord  Chief  Justice  was 
quite  right.  I  think  that  the  nondisclosure  by  the  plaintiffs  of  the 
fact  that  to  their  knowledge  the^Ierk  had  been  guilty  of  defalcations 
in  their  service  before  the  bond  was  executed  constituted  a  represen- 
tation that  he  had  not  been  guilty  of  such  dishonesty. 

The" appeal  therefore  fails  and  must  be  dismissed. 

Farwell,  L.  J. :  I  am  of  the  same  opinion.  Whether  it  would  have 
been  necessary  at  common  law  to  prove  fraud  in  cases  like  the  pres- 
ent I  express  no  opinion,  because  I  am  clear  that/in  equity  from  very/ 
early  times  it  was  unnecessary  for  a  surety  to^pTOve  fraud  in  the 
case  of  a  material  misrepresentation  inducing  the  contract ;  and, 
since  the  Judicature  Act,  if  there  is  any  difference  between  the  rules 
of  common  law  and  those  of  equity,  the  rule  of  equity  is  to  prevail. 
Sureties  have  for  very  many  years  been  favored  in  equity,  and  in  va- 
rious cases  relief  has  been  given  them  from  time  to  time  on  what 
has  been  called  the  clearest  and  most  evident  equity — Lord  Eldon 
calls  it  in  one  case  the  "good  faith  of  the  contract" — and  rules  were 
laid  down  in  equity  in  favor  of  sureties,  which  have  been  binding  for 
years ;  for  example,  the  equitable  doctrine  that  entitled  a  surety  to 
be  discharged  if  the  creditor  gave  time  to  the  debtor,  which  was 
acted  on  in  Rees  v.  Berrington  (1795),  2  Ves.  540,  where  an  in- 
junction was  granted  to  restrain  an  action  at  law  brought  by  the 
executors  of  the  creditor  who  obtained  the  security  and  had  given 
time  to  the  debtor. 

We  have,  therefore,  to  consider  whether  there  is  in  this  case  any 
ground  for  relief  in  equity  before  the  Judicature  Acts  which  can 


86 


THE    CONTRACT 


now  be  granted  by  the  high  court.  Of  course,  if  there  were  fraud, 
fraud  unravels  all  contracts,  both  at  law  and  in  equity,  but  in  a  case 
like  the  present  fraud  was  not  necessary  to  entitle  the  surety  to  re- 
lief in  equity.  Innocent  misrepresentation  is  sufficient,  and,  al- 
though the  doctrine  by  which  uberrima  fides  is  required  in  insurance 
cases  is  not  applicable  to  the  same  extent  in  suretyship  cases,  still  the 
surety  is  entitled  to  relief  on  the  ground  of  nondisclosure  of  matters 
which  ought  to  have  been  communicated  to  him,  whether  the  non- 
communication was  or  was  not  innocent. 

I  will  not  repeat  again  the  passages  which  Vaughan  Williams, 
L.  J.,  has  already  read  from  the  judgments  of  Lord  Cottenham  and 
Lord  Campbell  in  Railton  v.  Mathews  (10  CI.  &  F.  934).  The 
passage  referred  to  from  the  judgment  of  Lord  Eldon  in  Smith  v. 
Bank  of  Scotland  (1  Dow  272,  at  p.  292)  is  as  follows:  "If  a  man 
found  that  his  agent  had  betrayed  his  trust,  that  he  owed  him  a 
sum  of  money,  or  that  it  was  likely  he  was  in  his  debt ;  if  under  such 
circumstances  he  required  sureties  for  his  fidelity,  holding  him  out  as 
a  trustworthy  person,  knowing,  or  having  ground  to  believe,  that  he 
was  not  so:  then  it  was  agreeable  to  the  doctrines  of  equity,  at 
least  in  England,  that  no  one  should  be  permitted  to  take  advantage 
of  such  conduct,  even  with  a  view  to  security  against  future  trans- 
actions of  the  agent."  The  injury  to  the  surety  is  the  same,  whether 
the  nondisclosure  was  due  to  fraud  or  forgetfulness.  This  is  not 
like  the  case  of  a  common-law  action;  it  is  a  case  of  relief  from 
a  contract  into  which  the  surety  was  induced  to  enter  by  a  misrep- 
resentation made  by  the  person  taking  the  suretyship  bond,  either 
wilfully  or  through  forgetfulness.  If  the  element  of  unfairness  is 
needed  to  give  rise  to  the  equity,  it  is  to  be  found  in  the  insistence 
on  a  contract  so  induced  after  the  truth  is  known.  The  materiality 
of  the  fact  concealed  in  this  case  is  to  my  mind  clear.  A  surety  may 
well  be  willing  to  guarantee  an  employer  against  defalcations  by  a 
servant  believed  to  be  dishonest ;  it  is  quite  another  matter  if  the 
.  servant  has  already  been  found  guilty  of  defalcations.  The  surety 
believes  that  he  is  making  himself  answerable  for  a  presumably 
honest  man,  not  for  a  known  thief. 

There  is  a  wide  distinction  between  a  case  like  the  present  and 
the  cases  which  have  been  cited  of  guarantees  for  overdrafts  given 
to  bankers,  such  as  Hamilton  v.  Watson  (12  CI.  &  F.  109)  and 
Wythes  v.  Labouchere  (5  Jur.  (N.  S.)  &  F.  109).  Dishonesty  may 
occur,  and  the  guarantee  is  given  to  insure  against  the  chance,  but 
guarantees  for  overdrafts  are  required  for  the  purpose,  and  not  on 
the  chance  of  being  used.  A  man  may  have  the  misfortune  to  be 
robbed  by  his  servant  in  the  course  of  his  business ;  if  he  is,  it  is  a 
mischance;  but  it  is  perfectly  legitimate  and  usual  for  a  man  to 
carry  on  his  business  on  borrowed  money,  including  money  bor- 
rowed from  his  bankers  by  way  of  overdraft,  and  the  surety  knows 


SURETYSHIP    OBTAINED    BY    FRAUD 


87 


this,  and  becomes  surety  for  the  very  purpose  of  enabling  him  to 
do  so.  There  is  nothing  in  such  a  case  which  the  surety  does  not 
know  as  well  as  any  other  member  of  the  community,  and  nothing 
therefore  which  needs  to  be  disclosed  to  him.  The  surety  may  well 
complain  "I  did  not  know  that  your  servant  was  a  thief ;"  but  he 
can  not  be  heard  to  complain  "I  did  not  know  your  customer  had 
been  overdrawing  his  account  or  what  the  nature  of  his  business 
was."  This  I  take  it  was  what  Lord  Campbell  meant  in  Hamilton 
v.  Watson  (12  CI.  &  F.  109)  when  he  said  this:  "Your  lordships 
must  particularly  notice  what  the  nature  of  the  contract  is.  It  is 
suretyship  upon  a  cash  account.  Now  the  question  is  what,  upon 
entering  into  such  a  contract,  ought  to  be  disclosed?  And  I  will 
venture  to  say,  if  your  lordships  were  to  adopt  the  principles  laid 
down  and  contended  for  by  the  appellant's  counsel  here,  that  you 
would  entirely  knock  up  those  transactions  in  Scotland  of  giving 
security  upon  a  cash  account;  because  no  bankers  would  rest  satis- 
fied that  they  had  a  security  for  the  advance  they  made,  if  as  it  is 
contended  it  is  essentially  necessary  that  everything  should  be  dis- 
closed by  the  creditor  that  is  material  for  the  surety  to  know.  If 
such  was  the  rule,  it  would  be  indispensably  necessary  for  the  bank- 
ers to  whom  the  security  is  to  be  given  to  state  how  the  account  has 
been  kept;  whether  the  debtor  was  in  the  habit  of  overdrawing; 
whether  he  was  punctual  in  his  dealings ;  whether  he  performed  his 
promises  in  an  honorable  manner ;  for  all  these  things  are  extremely 
material  for  the  surety  to  know.  But,  unless  questions  be  partic- 
ularly put  by  the  surety  to  gain  this  information,  I  hold  that  it  is 
quite  unnecessary  for  the  creditor,  to  whom  the  suretyship  is  to  be 
given,  to  make  any  such  disclosure :  and  I  should  think  that  this 
might  be  considered  as  the  criterion  whether  the  disclosure  ought  to 
be  made  voluntarily,  namely,  whether  there  is  anything  that  might 
not  naturally  be  expected  to  take  place  between  the  parties  who  are 
concerned  in  the  transaction,  that  is,  whether  there  be  a  contract 
between  the  debtor  and  the  creditor,  to  the  effect  that  his  position 
shall  be  different  from  that  which  the  surety  might  naturally  expect : 
and,  if  so,  the  surety  is  to  see  whether  that  is  disclosed  to  him.  But, 
if  there  be  nothing  which  might  not  naturally  take  place  between 
these  parties,  then,  if  the  surety  would  guard  against  particular 
perils,  he  must  put  the  question,  and  he  must  gain  the  information 
which  he  requires."  No  surety  asked  to  guarantee  a  banking  ac- 
count is  entitled  to  assume  that  the  customer  of  the  bank  has  not 
been  in  the  habit  of  overdrawing;  the  proper  presumption  in  most 
instances  is  that  he  has  been  doing  so,  and  wishes  to  do  so  again. 
That  is  a  legitimate  carrying  on  of  business,  and  that  is  what  the 
surety  is  asked  to  guarantee.  The  present  case  is  very  different.  I 
think  there  is  no  necessity  for  proof  of  fraud  in  such  a  case,  and  I 
am  glad  to  assume  that  the  plaintiffs  had  forgotten  the  clerk's  pre- 


88  THE    CONTRACT 

vious  defalcations,  or  that  it  did  not  occur  to  them  to  disclose  these 
defalcations.     For  all  that,  I  think  they  can  not  enforce  the  bond 
which  the  surety  gave  in  ignorance  of  them,  and  I  agree  that  the 
appeal  must  be  dismissed. 
Appeal  dismissed.* 


HERBERT  v.  LEE  ET  AL. 

118  Tcnn.  133,  101  S.  IV.  175  (1906). 

.  Mr.  Chief  Justice  Beard  delivered  the  opinion  of  the  court. 

The  complainant  was  the  general  agent  for  Tennessee  of  the 
PrQyident  Saving  Assurance  Society  of  New  York,  and  as  such  had 
the  power  to  appoint  subagents  in  his  territory,  who  were  directly 
responsible  to  him  for  the  conduct  of  the  business  done  by  them, 
while  he  was  liable  to  his  principal  for  any  default  on  their  part. 
On  the  12th  of  March,  1902,  he  appointed  the  defendant  Lee,  of 
Knoxville,  in  this  state,  as  a  sul767xlmate~  agent  of  the  company,  and 
at  the  same  time  entered  into  a  written  contract  with  him  prescrib- 
ing his  duties  and  providing  for  his  compensation.  Under  this  con- 
tract Lee  was  to  canvass  for  applications  for  assurance  on  the  lives 
of  individuals,  and,  when  obtained,  forward  them  through  complain- 
ant to  the  society  for  its  action.  One  of  its  terms  required  Lee  to 
collect  and  "forthwith  pay  over  to  the  complainant  all  moneys_col- 
lected  by  him  for  the  society,  less  the  amount  he  was  entitled  to  re- 
ceive for  compensation."  It  was  also  provided  therein  that  Lee 
should  furnish  bond,  with  satisfactory  sureties,  for  the  faithful  per- 
formance of  his  duties  growing  out  of  this  contract  of  agency,  and 
that  this  bond  was  to  be  executed  as  a  condition  precedent  to  his 
employment.  Notwithstanding  this  provision,  Lee  entered  at  once 
upon  his  agency.  Subsequently,  however,  the  complainant,  whose 
residence  was  in  Nashville,  Tenn.,  forwarded  to  Lee  at  Knoxville, 
Tenn.,  a  printed  form  of  a  bond  in  the  penalty  of  $2,000,  with  direc- 
tion that  he  execute  it  and  obtain  two  sureties  upon  it.  On  receiv- 
ing this,  on  the  1st  of  July,  1902,  having  signed  this  bond  himself 
and  procured  E.  Buffat  and  Bruce  Davis  to  execute  it  as  his  sure- 
ties, Lee  returned  it  to  complainant  at  Nashville,  and  the  same  was 
accepted  by  him.  Subsequently  Buffat,  one  of  these  securities,  died, 
and  the  complainant  thereupon  called  upon  Lee  to  execute  another 
bond,  and  to  this  end  sent  him,  as  in  the  first  instance,  a  printed 
form  of  a  bond  in  the  penalty  of  $2,000,  which  he  procured  the  de- 
fendant Luttrell  to  sign  as  his  surety,  when,  having  returned  it  to 
the  complainant,  the  same  was  accepted  by  him.  This  bond  was 
executed  on  the  6th  of  March,  1903,  and  on  the  1st  of  May  there- 

*Kennedy,  L.  J.,  delivered  a  concurring  opinion. 


Vukt 


SURETYSHIP    OBTAINED    BY    FRAUD 


89 


after  the  relation  between  complainant  and  defendant  Lee  was  dis- 
solved and  the  latter  was  discharged,  owing  at  the  time  to  the  former 
some  $1,600,  arising  out  of  his  conduct  of  this  agency.  The  present 
bill  is  filed  by  the  complainant  against  Lee,  the  principal,  and  Rruce 
Davis,  Mrs.  Helen  Buffat,  administratrix  of  E.  Buffat,  and  James 
C.  Luttrell,  to  hold  them  liable  for  the  amount  of  this  deficit.  Lee, 
the  principal,  made  no  defense,  and  by  his  silence  confessed  the 
claim.  Davis  and  Luttrell,  as  well  as  the  administratrix  of  the  de- 
ceased surety,  defend,  and  say,  among  other  things,  that  at  the  time 
of  the  execution'~oT~TrIe^two  bonds  in  question  Lee  was  a  defaulter 
to  the  complainant,  and  that  he  and  the  complainant  conspired  to- 
gether!: or  the  purpose  of  misleading  the  sureties  by  concealing  the 
fact  of  this  default,  and  by  representing,  as  is  alleged  they  did,  "that 
the  said  Dan  K.  Lee  was  soliciting  agent  of  the  said  Hebert,  and 
was  conducting  a  legitimate  insurance  business  as  such  soliciting 
agent  under  the  said  Hebert." 

The  court  of  chancery  appeals  find  as  a  fact  that  at  the  time  of 
the  execution  of  the  bond  dated  July  1,  1902,  Lee  was  indebted  to 
complainant  in  the. sum  of  $693.20,  and  from  that  date  to  March  6, 
1903,  the  day  of  the  execution  of  the  second  bond,  his  liabilities  to 
complainant  increased,  until  on  that  day  it  amounted  to  $1,711.91, 
and  from  this  latter  date  to  that  of  his  dismissal  it  increased  in  the 
sum  of  $182.71,  making  a  total  of  liabilities  accruing  under  the  con- 
tract of  agency  of  $2,725.70,  less  the  sum  of  $1,094.05  paid  over 
from  time  to  time  by  Lee  to  Hebert. 

It  is  further  found  by  that  court  that  no  communication  passed 
between  the  complainant  and  the  several  sureties  signing  these 
bonds,  and  they  signed  the  same  without  making  any  inquiry  as  to 
the  condition  of  Lee's  accounts,  and  without  any  misleading  state- 
ment authorized  by  complainant  to  be  made  by  Lee  to  them.  So  it 
is,  if  they  are  discharged  from  liability  on  these  bonds,  it  will  result 
from  no  affirmative  action  on  his  part,  but  from  mere  inaction 
which  the  law  will  ascribe  as  a  wrong  done  by  him  to  these  sureties 

We  think  there  can  be  no  doubt  that  the  mere  failure  upon  the 
part  of  the  complainant  to  inform  these  sureties  of  the  fact  that 
their  principal,  Lee,  had  fallen  behind  from  time  to  time  in  his  ac- 
counts as  agent,  until  his  liabilities  had  amounted  at  the  execution 
of  these  two  bonds  to  the  sums  stated,  would  not  be  sufficient  to 
relieve  them  from  liability.  If  the  present  case  was  that — in  other 
words,  if  this  was  a  cast  in  which  the  agent  was  simply  behind  in  his 
accounts,  and  the  complainant  had  failed  to  communicate,  in  the  ab-  . 
sence  of  investigation  or  inquiry  upon  the  part  of  the  sureties,  this 
fact  to  them — we  think  this  would  not  constitute  a  ground  for  re- 
sisting a  recovery  on  these  bonds.  But  the  court  of  chancery  appeals 
does  not  leave  the  case  in  that  condition.  That^QQurt  finds,  in  words 
which  admit  of  no  other  construction,  that  at  the  time  of  the  execu- 
tion of  these  several  bonds  Lee's  liabilities  grew  out  of  the  embezzle-  , 


; 


90 


THE    CONTRACT 


ment  of  his  principal's  funds,  and  that  he  was  at  each  of  these  dates 
a  "defaulter"  within  the  knowledge  of  complainant. 

We  think,  upon  this  finding  of  facts,  that  a  failure  upon  the  part 
of  the  obligee  to  communicate  the  criminal  conduct  of  Lee,  out  of 
which  the  existing  indebtedness  occurred,  at  the  time  of  the  making 
of  these  bonds,  to  the  sureties  upon  them,  although  not  inquired  of 
by  the  sureties,  was  such  conduct  on  his  part  as  to  relieve  the  sure- 
ties from  liability.  This  principle,  which  it  seems  to  us  rests  in  sound 
morals,  has  been  announced  in  many  cases,  the  leading  one  of  which, 
possibly,  is  that  of  Phillips  v.  Foxhall,  L.  R.  7  Q.  B.  666.  This  case 
rested  for  authority,  in  part,  upon  Smith  v.  Bank  of  Scotland,  1 
Dow  272.  In  the  course  of  the  opinion  delivered  in  the  House  of 
Lords  in  that  case,  Lord  Eldon  said:  "If  a  man  found  that  his 
agent  had  betrayed  his  trust,  that  he  owed  him  a  sum  of  money 
*  *  *  if  under  such  circumstances  he  required  sureties  for  his 
fidelity,  holding  him  out  as  a  trustworthy  person,  knowing  or  hav- 
ing ground  to  believe  that  he  was  not,  then  it  was  agreeable  to  the 
doctrines  of  equity,  at  least  in  England,  that  no  one  should  be  per- 
mitted to  take  advantage  of  such  conduct,  even  with  a  view  to  se- 
curity against  future  transactions  of  the  agent." 

In  State  v.  Sooy,  39  N.  J.  Law  135,  it  was  held  "that  a  party  tak\ 
ing  a  bond  for  the  future  good  conduct  of  an  agent  already  in  his  \ 
employment  must  communicate  to  his  security  his  knowledge  of  the  [v  •, 
past  criminal  misconduct  of  such  agent  in  the  course  of  such  past 
employment,  in  order  to  make  such  bond  binding."  / 

In  Dinsmore  v.  Tidball,  34  Ohio  St.  411,  the  action  was  upon  the 
bond  to  indemnify  the  Adams  Express  Company  against  loss  for 
the  dishonesty  or  unfaithfulness  of  an  agent.  The  agent  was  at  the 
time  in  the  employment  of  the  company,  and  had  been  guilty  of  acts 
of  embezzlement,  which  fact  was  not  communicated  to  the  surety. 
In  disposing  of  the  question  raised  by  the  surety  upon  this  state  of 
facts  the  court  said : 

"Admitting  that  a  principal,  in  accepting  a  guaranty  for  the  faith- 
ful and  honest  conduct  of  his  agent,  is  not  bound  under  all  circum- 
stances to  communicate  to  the  guarantor  every  fact  within  his 
knowledge  which  increases  the  risk,  yet  we  think  there  can  be  no 
doubt,  either  upon  principle  or  authority,  that,  when  an  agent  had 
acted  dishonestly  ininV^mployment,  the  principal,  with  the  knowl- 
.  edge  of  the  fact,  can  not  accept  a  guaranty  for  his  future  honesty 
from  one  who  is  ignorant  of  the  agent's  dishonesty,  to  whom  the 
agent  is  held  out  by  the  principal  as  a  person  worthy  of  confidence. 
The  failure  to  communicate  such  knowledge  under  such  circum-J 
stances  would  be  a  fraud  upon  the  guarantor." 

In  Charlotte,  Columbia  &  Augusta  R.  R.  v.  Gaw,  59  Ga.  685,  27 
Am.  Rep.  403,  it  was  held,  in  applying  the  principle  in  favor  of  a  \ 
surety  where  the  dishonesty  of  the  agent  was  discovered  subsequent 
to  the  making  of  the  bond,  and  yet  was  not  communicated  to  the 


% 


r 


SURETYSHIP    OBTAINED    BY    FRAUD  91 

surety,  that  such  agent,  "being  under  bond  to  account  and  pay  over 
daily,  can  not  be  trusted  with  more  money  at  the  sureties'  risk  after 
dishonesty  of  the  agent  had  been  discovered  by  the  corporation,  but 
may  be  so  trusted  so  long  as  the  circumstances,  fairly  interpreted, 
do  not  point  to  moral  turpitude,  but  to  a  want  of  diligence  and  punc- 
tuality, rather  than  to  a  want  of  integrity."  The  same  principle  is 
recognized  as  being  eminently  sound  in  Saint  v.  Wheeler  &c.  Mfg. 
Co.,  95  Ala.  362,  10  So.  539,  36  Am.  St.  Rep.  210;  in  Roberts  v. 
Donovan,  70  Cal.  108,  9  Pac.  599 ;  in  Atlantic  &c.  Tel.  Co.  v.  Barnes, 
64  N.  Y.  385,  21  Am.  Rep.  621,  and  in  Newark  v.  Stout,  52  N.  Y.  , 
Law  35,  18  Atl.  943. 

The  rule  is  otherwise  if  the  acts  of  the  agent,  undisclosed  to  his 
surety,  do  not  involve  moral  turpitude,  but  are  such  as  are  consistent 
with  honesty,  and  only  tend  to  show  that  the  agent  is  negligent, 
dilatory,  or  unskilled.  In  such  case  the  law  does  not  impose  the 
duty  upon  the  obligee,  unasked,  to  give  the  surety  information  of 
such  facts.  This  distinctive  principle  is  recognized  in  Screwmen's 
&c.  Assn.  v.  Smith,  70  Tex.  168,  7  S.  W.  793;  Atlas  Bank  v. 
Brownell,  9  R.  I.  169,  11  Am.  Rep.  231;  Home  Insurance  Co.  v. 
Holway,  55  Iowa  571,  8  N.  W.  457,  39  Am.  Rep.  179;  Watertown 
Fire  Ins.  Co.  v.  Simmons,  131  Mass.  85,  41  Am.  Rep.  196;  Domestic 
Sewing  Machine  Co.  v.  Jackson,  15  Lea  418. 

It  is  true,  as  has  been  stated,  that  the  complainant  had  no  com- 
munication with  the  sureties  upon  these  bonds,  and  that  they  were 
presented  to  and  signed  by  them  at  the  instance  of  Lee,  their  prin- 
cipal ;  yet  we  think  this  fact  does  not  prevent  them  from  availing 
themselves  of  the  principle  announced  in  Phillips  v.  Foxhall,  supra, 
and  the  other  cases  to  which  reference  has  been  made.  The  bonds 
were  sent  out  by  the  complainant  to  Lee  in  order  that  he  might  ob- 
tain sureties  upon  them,  and  we  can  see  no  distinction  between  this 
case  and  one  where  the  obligee  personally  presents  the  bond  to  the 
surety  and  obtains  his  signature  to  it,  knowing  at  the  time  that  the 
agent  has  been  guilty  of  criminal  offense  theretofore  in  the  manage- 
ment of  his  agency,  and  fails  to  communicate  the  fact  to  the  surety. _ 
I1  The  presentation  of  the  bond,  without  more,  is  an  implied  assur- 
'"ance,  at  least,  that  the  agent  has  been  guilty  of  no  criminal  delin- 
quency in  the  management  of  the  affairs  of  his  agency ;  and  we) 
think  the  surety  is  as  well  discharged  in  the  one  case  as  in  the  other, 
if  without  any  knowledge  of  the  existence  of  such  default  he  signs 
the  bond. 

Nor  do  we  think  that  the  liability  of  these  sureties,  in  view  of  the 
finding  that  Lee  had  been  guilty  of  embezzlement  of  the  obligee's 
funds  theretofore,  is  affected  by  the  recital  in  these  bonds  that  the 
sureties  undertook  to  become  liable,  not  only  for  the  debts  that 
might  be  incurred  by  Lee  after  the  date  of  these  bonds,  but  such 
moneys  as  he  might  owe  to  the  obligee  growing  out  of  the  affairs  of 
his  agency  at  that  time.    In  the  absence  of  the  element  which  we 


92  THE    CONTRACT 

find  as  a  matter  of  law  goes  to  the  discharge  of  these  sureties,  there 
is  no  doubt  upon  these  bonds  that  these  sureties  would  have  been 
liable,  not  only  for  debts  incurred  thereafter  by  Lee  in  the  course 
of  his  agency,  but  for  debts  then  existing.  But  the  knowledge  of 
the  obligee  that  these  debts  were  the  result  of  dishonest  dealings 
upon  the  part  of  Lee,  uncommunicated  to  the  sureties,  in  spite  of  I  t£ 
this  recital,  can  be  availed  of  by  the  sureties  in  order  to  defeat  re-  I 
covery  on  these  bonds.   Franklin  Bank  v.  Stevens,  39  Maine  532. 

It  follows,  therefore,  that  the  decree  of  the  court  of  chancery 
appeals  is  affirmed. 

'Accord:  Magee  v.  Manhattan  Life  Ins.  Co.,  92  U.  S.  93,  23  L.  ed.  699; 
Howe  Machine  Co.  v.  Farrington,  82  N.  Y.  121 ;  Domestic  Sewing  Mach.  Co. 
v.  Jackson,  15  Lea  (Tenn.)  418. 

Mere  knowledge  on  the  part  of  the  creditor,  uncommunicated  to  the  surety, 
of  the  insolvency  of  the  principal  debtor  at  the  time  the  contract  of  surety- 
ship is  entered  into  will  not  release  the  surety.  Ham  v.  Greve,  34  Ind.  18; 
Sebald  v.  Citizens'  Deposit  Bank,  31  Ky.  L.  1244,  105  S.  W.  130;  Farmers  & 
D.  National  Bank  v.  Braden,  145  Pa.  473,  22  Atl.  1045. 

Sureties  on  the  bonds  of  public  officers  will  not  be  discharged  by  the  con-\./" 
cealment,  on  the  part  of  tbose  who  are  charged  with  the  duty  of  accepting  or    1 
approving  such  bonds,  of  the  principal's  prior  defalcations.   Fidelity  &  Depositj    ^  / 
Co.  v.  Commonwealth,  104  Ky.  579,  47  S.  W.  579,  49  S.  W.  467;  Cawley  v. 
People,  95  111.  249;  Independent  School  District  v.  Hubbard,  110  Iowa  58,  81 
N.  W.  241,  80  Am.  St.  271 ;  Frownfeiter  v.  State,  66  Md.  80,  5  Atl.  410;  Pine 
County  v.  Willard,  39  Minn.  125,  39  N.  W.  71,  1  L.  R.  A.  118,  12  Am.  St.  622; 
Hogue  v.  State,  28  Ind.  App.  285,  62  N.  E.  656. 

Contra :    Sooy  v.  State,  39  N.  J.  L.  135. 


THE  BANK  OF  MONROE  v.  THE  ANDERSON  BROS." 
MINING  AND  RAILWAY  CO.  ET  AL. 

65  Iowa  692,  22  N.  W.  929  (1885). 

Reed,  J. :  We  have  thought  it  proper  to  lay  down  what  we  con- 
ceive to  be  the  true  rule  as  to  the  duty  of  a  creditor,  who  is  about 
to  accept  a  personal  security  for  a  debt  due  him,  to  inform  the 
surety  of  facts  within  his  knowledge  which  would  have  the  effect 
to  increase  the  risks  of  the  undertaking  of  the  surety,  The  contract 
of  suretyship,  as  a  general  rule,  is  for  the  benefit  of  the  creditor, 
while  the  surety  derives  no  advantage  from  it.  Hence  the  law 
imposes  upon  the  creditor  the  duty  of  dealing  with  the  surety  at 
every  step  of  the  transaction  with  the  utmost  good  faith.  If  the 
surety  applies  to  him,  before  entering  into  the  contract,  for  infor- 
mation touching  any  matter  materially  affecting  the  risk  of  the 
undertaking,  he  is  bound,  if  he  assumes  to  answer  the  inquiry  at\ 
all,  to  give  full  information  as  to  every  fact  within  his  knowledge ; 
and  he  can  do  nothing  to  deceive  or  mislead  the  surety  without 
vitiating  the  agreement.    And  whether  he  is  bound,  before  accepting 


SURETYSHIP    OBTAINED   BY   FRAUD  93 

the  undertaking  of  the  surety,  and  without  being  applied  to  by  him 
for  information  on  the  subject,  to  inform  him  of  facts  within 
his  knowledge  which  increases  the  risks  of  the  undertaking,  depends 
on  the  circumstances  of  the  case.  If  there  is  nothing  in  the  circum- 
stances to  indicate  that  the  surety  is  being  misled  or  deceived,  or 
that  he  is  entering  into  the  contract  in  ignorance  of  facts  materially 
affecting  its  risks,  the  creditor  is  not  bound  to  seek  him  out,  or 
without  being  applied  to,  communicate  to  him  information  as  to  the 
facts  within  his  knowledge.  But  in  such  case  he  may  assume  that 
the  surety  has  obtained  information  for  his  guidance  from  other 
sources,  or  that  he  has  chosen  to  assume  the  risks  of  the  under- 
taking, whatever  they  may  be.  But  if  he  knows,  or  has  good  grounds 
for  believing,  that  the  surety  is  being  deceived  or  misled,  or  that  he 
was  induced  to  enter  into  the  contract  in  ignorance  of  facts  ma- 
terially increasing  the  risks,  of  which  he  has  knowledge,  and  he  has 
'an  opportunity,  before  accepting  his  undertaking,  to  inform  him  of 
such  facts,  good  faith  and  fair  dealing  demand  that  he  should  make 
such  disclosure  to  him ;  and  if  he  accepts  the  contract  without  doing 
so,  the  surety  may  afterward  avoid  it. 

See  also  Remington  Sewing  Machine  Co.  v.  Kezertee.  49  Wis.  409,  5  N.  W. 
809 ;  Sooy  v.  Stat^_3Q  N  J,  T  13*;  AtkntiV  Trust  &c.  Co.  v.  Union  Trust  &c. 
Co.,  Il0-Va7~285767  S.  E.  182. 


CARROLL  S.  PAGE,  RESPONDENT,  v.  JOSEPH  KREKEY,' 

APPELLANT 

137  N.  Y.  307,  33  N.  E.  311,  21  L.  R.  A.  409,  33  Am.  St.  731  (1893). 


fc 


This  was  an  action  upon  a  guaranty  set  forth  in  the  opinion, 
which  also  states'  tEe~Tacts,  so  far  as  material. 

O'Brien,  J. :  The  judgment  from  which  this  appeal  is  taken  was 
recovered  upon  a  guaranty,  signed  by  the  defendant  and  sent  to  the 
plaintiff,  a  resident  of  Vermont,  by  mail.  The  plaintiff  had  business 
transactions  with  one  Bernard  Thinnes  prior  to  the  guaranty.  The 
latter  was  a  tanner  in  Brooklyn,  and  the  plaintiff,  a  dealer  in  green 
calf  skins,  had  shipped  to  him  skins  at  various  times  to  tan  and, 
unless  he  elected  to  buy  them  at  a  certain  price,  then  to  return  them, 
so  tanned,  to  the  plaintiff,  or  deliver  them  according  to  his  order. 
The  following  is  the  instrument  upon  which  the  action  was  brought : 

"Brooklyn,  N.  Y.,  March  14,  1889. 
"Mr.  C.  S.  Page,  Hyde  Park,  Vt. : 

"I  am  well  acquainted  with  B.  A.  Thinnes,  tanner,  of  this  place. 
I  believe  him  to  be  a  good  tanner,  honorable  and  straightforward 
in  his  dealings  and  attentive  to  business,  and  if  you  will  from  time 
to  time  send  hides  and  skins  to  him,  I  hereby  guarantee  that  he 


94  THE    CONTRACT 

will  not  convert  or  misappropriate  them,  but  will  well  and  faithfully 
tan  them,  and,  if  he  does  not  buy  and  pay  you  for  them  within  the 
time  agreed  upon  between  you,  I  agree  that  he  shall  deliver  them  at 
Rose,  McAlpine  &  Co.,  New  York  City,  N.  Y. 
"Notice  of  your  acceptance  is  hereby  waived. 

''Joseph  Krekey, 
"P.  O.  Address,  248  Freeman  Street." 

It  was  shown  at  the  trial  that  the  defendant  was  an  illiterate  man, 
who  could  not  read  nor  write,  except  possibly  to  sign  his  name. 
That  he  signed  the  paper  at  the  request  of  Thinnes  when  in  a  state 
oTTntoxication,  and  under  the  false  representation  that  it  was  an 
application  for  a  license  under  the  excise  law.  The  principal  .part 
of  the  instrument  was  in  print,  probably  prepared  by  the  plaintiff,  or 
under  his  direction.  At  all  events  it  was  presented  to  the  defendant 
by  Thinnes,  the  representations  as  to  its  character  were  made  by  him, 
and  when  he  procured  the  defendant's  signature,  he  sent  it  to  the 
plaintiff,  who,  so  far  as  appears,  never  met  or  had  any  personal 
transaction  with  the  defendant.  The  plaintiff's  claim  against  Thin- 
nes, exclusive  of  interest,  was  $2,122.79  for  skins  shipped  to  him 
under  six  written  contracts,  bearing  various  dates  between  May  1, 
1889,  and  July  1,  1889.'  All  of  these  contracts  provided  that  in 
case  of  failure  to  pay  for  the  goods  they  should  be  delivered  to  the 
firm  of  Myers  &  Gordon.  The  only  question  submitted-to  the  jury' 
was  whether  the  defendant,  in  signing  the  paper,  observed  proper 
(  care  and  caution,  or  was  chargeable  with  negligence.  In  determin 
ing  the  legal  effect  of  this  paper,  and  the  obligation  thereby  created 
against  the  defendant,  we  must  assume  that  he  signed  it  when  intoxi 
cated,  that  he  was  unable  to  read  it,  that  he  was  ignorant  of  its  con- 
tents, and  that  he  fixed  his  signature  to  it  upon  the  false  representa 
tion  that  it  was  an  application  for  a  license. 

There  can  be  no  doubt  that,  as  between  the  parties  to  this  trans- 
action, the  instrument  was  void.  It  was  also  invalid  in  the  hands 
of  any  person  who  received  it  with  knowledge  or  notice  of  the  cir- 
cumstances under  which  the  defendant's  signature  was  obtained. 
Sometimes  releases,  discharges  and  other  instruments  are  procured 
by  the  fraud  of  a  third  person,  without  the  knowledge  or  participa- 
tion in  the  fraud  of  the  party  to  be  benefited,  who,  nevertheless, 
will  not  be  permitted  to  reap  the  benefit  of  a  fraud,  though  he  was 
himself  innocent.  The  case  of  Bedell  v.  Bedell  (37  Hun  419)  is 
an  example  of  this  class  of  cases.  The  decisions  in  these  cases  rest 
upon  principles  obviously  just  and  reasonable.  When  the  fraud- 
ulent act  is  not  imputable  to  the  person  claiming  the  benefit  of  the  in- 
strument, upon  the  principle  of  agency,  he  is  generally  debarred 
from  enforcing  it  upon  the  ground  of  the  fraudulent  origin  of  the 
paper  and  the  fact  that  he  has  lost  nothing  upon  the  faith  of  it. 
Without  examining  all  the  cases  cited  by  the  learned  counsel  for 


SURETYSHIP    OBTAINED    BY    FRAUD  95 

the  defendant,  it  may  be  assumed  that  in  other  jurisdictions  the 
courts  have  held  that  in  a  case  like  this  the  instrument  could  not  be 
enforced  any  more  than  if  the  signature  of  the  defendant  had  been 
forged.  That  is  the  principle  which  is  invoked  in  behalf  of  the  de- 
fendant to  relieve  him  from  all  liability,  but  it  has  not  received  the 
sanction  of  the  courts  of  this  state. 

While  it  has  been  quite  uniformly  held  here  that  an  instrument 
procured  by  fraud,  trick  or  artifice,  or  executed  by  a  party  in  such 
a  state  of  intoxication  as  to  be  incapable  of  consenting  or  contract- 
ing, is  invalid  as  between  the  parties  to  the  transaction,  these  facts 
do  not  always  constitute  a  defense  as  against  an  innocent  person, 
who  is  himself  free  from  any  fraud  or  negligence,  and  who  has  ad- 
vanced money  or  property  to  another  upon  the  credit  afforded  by 
an  instrument  like  this.  But  even  in  such  a  case,  the  person  wlux 
"has  signed  the  paper  is  not  liable  upon  it  unless  it  is  found  that  he/ 
failed  to  observe  the  proper  care  and  caution  and  was  chargeable^ 
with  negligence  in  attaching  his  signature.  /If  he  actually  signed  the 
paper,  though  procured  to  do  it  by  fraud,  and  is  chargeable  with  ' 
negligence,  he  is  liable  to  an  innocent  party  who  acted  to  his  preju- 
dice upon  the  faith  of  the  instrument.  Such  cases  are  not  gov- 
erned by  the  rules  applicable  to  the  bona  fide  holder  of  negotiable 
paper  procured  by  fraud,  but  by  the  equitable  rule  that  where  one 
of  two  innocent  parties  must  suffer,  he  who  has  put  it  in  the  power  . 
of  a  third  person  to  commit  the  fraud  must  sustain  the  loss.  If  the 
defendant  is  to  be  held  liable  in  this  case,  it  must  be  upon  the  prin- 
ciple that  by  his  misplaced  confidence  in  Thinnes,  he  enabled  him  to 
obtain  property  from  the  plaintiff,  who  is  an  innocent  third  party. 
(McWilliams  v.  Mason,  31  N.  Y.  294;  Western  N.  Y.  L.  I.  Co.  v. 
Clinton,  66  id.  326;  Powers  v.  Clarke,  127  id.  417;  Casoni  v.  Je- 
rome, 58  id.  315;  Baylies  on  Sureties  and  Guarantors,  214;  Burge 
on  Suretyship,  218.) 

If  this  instrument  had  been  a  negotiable  promissory  note  the  de- 
fendant's liability  to  the  plaintiff  wovM  depend  upon  the  question 
of  negligence  and  there  does  not  appear  to  be  any  sound  reason  for 
a  different  rule  in  this  case.  (Chapman  v.  Rose,  56  N.  Y.  137; 
Whitney  v.  Snyder,  2  Lans.  477 ;  National  Exchange  Bank  v. 
Veneman,  43  Hun  241 ;  Fenton  v.  Robinson,  4  id.  252.) 

Taylor  County  v.  King,  73  Iowa  153,  34  N.  W.  774,  5  Am.  St.  666 ;  State  v. 
Peck,  53  Maine  284;  Johnston  v.  Patterson,  114  Pa.  398,  6  Atl.  746. 


\ 

96  'THE    CONTRACT 

t 

HORACE  G.  BIGELOW  v.  CORNELIUS  G.  W.  COMEGYS 
50  Ohio  St.  256  (1855). 

The  original  proceeding  was  a  suit  on  a  replevin  bond  signed  by 
the  plaintiff  in  error  as  surety  for  Joseph  C.  Rich^  and  given  in  a 
certain  action  of  replevin  which  had  been  instituted  in  the  common 
pleas  of  Hamilton  county  by  said  Rich,  against  Cornelius  G.  W. 
Comegys  and  William  Comegys,  and  in  which  action  judgmentTKad 
been  rendered  for  the  defendant^  The  name  of  Solomon  Eversull 
appeared  on  the  replevin  bond  as  cosurety  with  the  plaintfff  in  error ; 
but  on  the  trial  in  the  superior  court  it  was  proved/and  admitted 
that  the  name  of  Eversull  on  the  bond  was  a  forgepy.  And  the  de- 
fense set  up  in  the  court  below,  by  the  plaintiff  iuf  error,  was;  thai 
he  was  induced  to  sign  the  bond  upon  the  fraudulent  representations 
made  to  him  on  the  part  of  Rich,  that  Eversullf  who  was  ^nown  to 
be  a  responsible  man,  had  already  signed  the  bond  as  a  surety.  And 
it  did  not  appear  that  either  Cornelius  G.  W.  or  Williarn  Comegys 
was  present  at  the  execution  of  the  bond  by  Bigelow,  <ov  in  any  way 
participated  in  the  fraud.  The  court  below  rendered  judgment  on 
the  bond  against  the  plaintiff  in  error,  and  to  reverse  that  judgment 
this  proceeding  in  error  is  prosecuted. 

Bartley,  J. :  The  obligor  of  a  bond  can  not  avoid  his  liability,  by 
showing  that  he  was  induced  to  execute  the  bond  by  the  fraud  of 
one  of  his  co-obligors,  in  which  the  obligee  had  no  participation 
whatever,  upon  the  settled  rule  that  where  one  of  two  persons  must 
suffer  loss  by  the  fraud  or  misconduct  of  a  third  person  he  who  first 
reposes  the  confidence  and  commits  the  first  oversight  must  bear 
the  loss. 

Judgment  of  the  court  below  affirmed. 


SECTION  7.   DELIVERY  AND  ACCEPTANCE 

SAMUEL  P.  P.  FAY,  JUDGE,  ETC.,  FOR  THE  BENEFIT  OF' 
JOHN  BARROWS  ET  UX.  v.  FRANCIS  RICHARD- 
SON ET  AL. 

7  Pick.  (Mass.)  91  (1828).     . 

This  was  an  action  on  an  instrument  purporting  to  be  a  bond  to 
the  judge  of  probate  for  the  county  of  Middlesex,  made  by  William 
Richardson,  as  principal,  and  the  defendants  as  sureties,  conditioned 
for  the  faithful  discharge  of  W.  Richardson's  duties  as  guardian  of 
Julia  Danforth,  a  minor.  The  case  was  submitted  to  the  court  on  a 
statement  of  facts  in  substance  as  follows : 


DELIVERY    AND   ACCEPTANCE  97 

On  March  4,  1823,  Ijulia  Dan  forth,  a  minor  and  unmarried,  aged  - 
eighteen  years,  now  the  wife  of  J.  Barrows,  chose  \Y.  Richardson 
tolje-her  guardian ;  land  on  March  5,  the 'judge  of  probate  made  a 
decree  appointm^fHim  guardian,  "he  giving  bond  as  the  law  directs." 
A  letter  of  guardianship  was  made  out,  but  not  delivered  to  him, 
on  which  the  register  indorsed,  "to  be  delivered  when  bond  is  filed." 

At  the  same  court,  Josiah  Crosby,  who  had  before  been  the  guard- 
ian of  the  minor,  settled  his  guardianship  account,  to  which  settle- 
ment Richardson  gave  his  assent  in  writing,  as  "guardian,"  which  ' 
assent  was  written  thereon  by  the  judge.     Soon  after  the  appoint- 

Jent,  Richardson  assumed  to  act  as  guardian,  and  continued  to  do 
i  till  his  death,  which  took  place  June  15,  1826.  On  November  24, 
>23,  he  received  of  Joseph  Locke,  who  had  been  surety  for  Isaac 
urd  Junior,  a  former  guardian  of  the  minor,  $339,  and  gave  a  dis- 
large  for  the  same  under  his  hand  and  seal  as  guardian. 

At  the  time  of  Richardson's  death,  the  bond  on  which  this  action 
is  brought  had  not  been  filed  in  the  probate  office,  and  the  letter  of 
guardianship  still  remained  there.  The  administrator  of  Richardson 
found  among  the  papers  of  the  deceased  a  warrant  of  appraisal,  to- 
gether with  the  bond  on  which  this  suit  is  brought,  filled  up  in  the 
handwriting  of  the  judge  or  register  of  probate,  having  the  signa- 
tures and  seals  of  Richardson  as  principal,  and  the  defendants  as 
sureties.  The  bond  was  executed  by  the  principal  and  sureties  in 
the  presence  of  witnesses,  and  the  bond  was  taken  away  by  Rich- 
ardson. 

Richardson's  administrator,  soon  after  finding  the  bond  and  be- 
fore the  commencement  of  this  action,  lodged  it  in  the  probate  office, 
with  the  following  endorsement :  "The  within  bond  was  found  by 
me  among  the  papers  of  the  within-named  William  Richardson  after 
his  decease,  in  the  form  in  which  it  now  exists.  I  file  this  bond  in 
the  registry  of  probate,  not  intending  to  withhold  any  right  from 
any  person  interested  in  it,  nor  by  any  act  of  mine  to  give  any  rights 
to  any  person  which  he  does  not  now  possess.  March  20,  1827. 
Marshall  Preston,  Administrator."  Shortly  before  William  Rich- 
ardson's death  he  had  assigned  property  to  the  defendant  Francis 
Richardson,  to  indemnify  him  against  his  liabilities  as  surety  for 
William,  but  the  property  assigned  is  not  sufficient  to  indemnify 
Francis  against  his  other  liabilities,  exclusive  of  the  claim  in  this 
case. 

K  The  bond  in  suit  had  the  following  endorsement  on  it :  "March 
5,  1823.  Examined,  approved,  and  ordered  to  be  filed,  &c.  S.  P.  P. 
Fay,  J.  Prob." 

Parker,  C.  J. :  We  have  not  been  able  to  find  any  principle  or 
authority  to  justify  us  in  giving  validity  to  the  bond  on  which  this 
suit  is  brought. 

A  bond  is  a  deed,  and  delivery  is  essential  to  a  deed./   There  are 
'7-DeWitt. 


98  THE    CONTRACT 

cases  of  a  constructive  delivery,  but  there  is  no  evidence  here  to 
bring  this  case  to  a  resemblance  of  them.  All  that  appears  is,  that 
the  paper  was  signed  and  sealed  by  the  principal  and  sureties  and 
,  was  left  in  the  hands  of  the  principal  until  his  death.  The  act  of 
his  administrator  can  not  make  a  deli veryj especially  as  the  mem- 
orandum was  intended  to  prevent  his  act  being  so  considered.  For 
aught  we  know,  it  was  never  intended  by  the  sureties  that  it  should 
be  delivered  until  sufficient  indemnity  was  given  to  them  by  the 
principal.  And  it  may  be,  that  finding  no  bond  in  the  probate 
office,  they  have  on  that  account  omitted  to  seek  for  security  which 
they  might,  otherwise  have  obtained.  The  certificate  on  the  bond, 
of  approbation  by  the  judge,  has  no  effect,  it  being  manifest  that  it 
was  made  before  the  bond  was  signed;  for  the  letter  of  guardian- 
ship remained  on  the  files,  with  the  minute  that  it  was  to  be  delivered 
when  the  bond  should  be  filed. 

It  is  certainly  a  very  hard  case  for  the  ward,  and  shows  the  imA 
portance  of  great  care  in  the  probate  office;  but  it  would  be  equally,^ 
hard  on  the  sureties  to  hold  them  liable.     At  any  rate,  they  insist!  £ 
,  upon  the  law,  and  we  can  not  withhold  it.    iThe  instrument  never 
ybecame  their  bond  by  their  definitive  act  of  delivery,  and  it  can  not 
be  made  so  by  any  power  of  this  court.^ 
Plaintiff  nonsuit. 

Accord :   Fiala  v.  AinswortH,  63  Nebr.  1,  88  N.  W.  135,  93  Am.  St.  420. 

But  where  the  obligor  parts  with  all  dominion  over  it,  and  makes  an  abso-  Vj 
lute  and  unconditional  delivery  thereof  to  a  third  person,  with  direction  to  the  y 
latter  to  deliver  it  to  the  obligee  on  the  death  of  the  obligor,  the  delivery  is  j  > 
good.   Frank  v.  Frank,  100  Va.  627,  42  S.  E.  666. 


CHARLES  A.  STUART  ET  AL.  v.  JESSE  J.  LIVESAY 

4  W.  Va.  45  (1870). 

Brown,  President  :  This  was  an  action  of  debt  on  a  bond,  pur- 
porting to  be  the  bond  of  three  obligors :  plea,  non  est  facTum.  Two 
of  the  parties  who  signed  the  alleged  bond,  together  with  two  others, 
had  been,  and  then  were  the  securities  of  the  principal  obligor,  in 
a  pre-existing  debt,  in  lieu  of  which  the  bond  in  question  was  to  be 
given,  that  the  two  securities,  Wm.  R.  Stuart  and  John  Stuart,  re- 
spectively  signed  the  said  bond,  with  a  distinct  understanding  that 
it  was  not  to  be  binding  on  them  until  it  was  signed  by  William  H. 
Shields  and  Thomas  L.  Feamster,  the  other  two  securities  in  the 
original  note ;  that  Charles  A.  Stuart,  the  principal  obligor,  stamped 
and  delivered  the  bond  to  the  obligee,  but  informed  him,  at  the  time, 
of  the  understanding  aforesaid  between  himself  and  William  R. 
and  John  Stuart,' and  the  obligee  then  took  the  bond  and  said  he 


99 

would  procure  the  signatures  of  said  Shields  and  Feamster  to  it. 
This  evidence  was  excluded  from  the  jury  as  inadmissible  under  the 
plea  of  non  est  factum. 

^ITiaTplea  put  in  issue  every  fact  essential  to  the  existence  of  the 
bond.  Delivering  was  an  essential  fact  to  such  existence.  It  will 
be  observecTthat  the  securities,  William  R.  and  John  Stuart,  did  not 
themselves  deliver  the  bond  in  question  to  the  obligee ;  but  they  re-  - 
spectively  signed  and  delivered  it  to  Charles  A.  Stuart,  the  principal 
obligor,  with  the  understanding  that  he  was  not  to  deliver  it  as  their 
bond  until  it  should  be  signed  by  the 'two  other  parties  named. 

In  delivering  the  bond  to  the  obligee,  the  principal  obligor, 
Charles  A.  Stuart,  acted  as  the  agent  of  William  R.  and  John  Stuart ; 
and  his  agency  was  either  general  or  special.  If  special,  it  must  be 
strictly  pursued.  If  general,  the  agent's  act  might  bind  the  prin- 
cipals, as  to  third  persons ;  though  not  strictly  following  his  instruc- 
tions, if  within  the  scope  of  the  general  power.  Had  the  agent  then, 
in  this  case  delivered  the  bond  absolutely,  notwithstanding  his  partic- 
ular instructions  and  special  authority,  but  without  notice  thereof 
to  the  obligee,  it  might  become  a  question  upon  which  there  seems  to 
be  much  contrarity  of  decision ;  but,  inasmuch  as  the  obligee  was  at 
Ithe  time  of  taking  the  bond  fully  advised  by  the  agent  of  the  facts, 
/andJ^2oT<_on_the  tej^r^  specified,  of  procuring  the  signature  required 
to  make  it  obligatory,  nothing  can  be  clearer  than  that  there  was  not 
in  such  case  any  such  delivery  of  the  bond,  as  the  bond  of  the  parlies 
to  be  bound  thereby;  and  being  no  such  delivery,  there  was  no  such 
bond.  The  evidence  was  admissible  under  the  general  plea  of  non 
,  esTTactum,  and  the  court  erred  in  excluding  it. 

For  the  error  above  stated  the  judgment  should  be  reversed,  with 
costs  to  the  plaintiffs  in  error,  the  verdict  set  aside,  and  a  new  trial 
awarded  and  the  cause  remanded  for  further  proceedings,  in  con- 
formity with  the  views  above  indicated. 

The  other  judges  concurred. 

Judgment  reversed. 

Accord  :  Weed  Sewing  Machine  Co.  v.  Jeudevine,  39  Mich.  590 ;  Dunlap  v. 
Willett,  153  N.  Car.  317,  69  S.  E.  222 ;  Baker  County  v.  Huntington,  46  Ore. 
272,  79  Pac.  187. 

1 


:JXj  Crt 


yy 

STATE  OF  MINNESOTA  v.  HENRY  YOUNG  AND  OTHERS 

23  Minn.  551   (1877). 

Mitchell,  J. :  It  is  further  urged  that  the  bond  in  question  is 
void,  because  it  was  signegLanxL^ealedL  on  Sunday. 

It  will  be  noticed  that,  although  actually  signed  on  Sunday,  it 
bears  _date~on  Monday ;  that  it  was  not  delivered  to  nor  accepted  by 
the  board  until  Thursday ;  that,  when  presented  to  and  accepted  by 


/ 


100  THE    CONTRACT 

the  board,  they  were  not  aware  of  the  fact  that  it  had  been  signed 
on  Sunday.  The  mere  statement  of  these  facts  is,  we  think,  a  suffi- 
cient answer  to  the  point  made  by  defendants.  The  objection  is  not 
well  taken  for  two  reasons :  First.  The  sureties  having,  by  their  own 
act  in  dating  the  bond  on  Monday,  represented  to  the  board  that  it 
was  in  fact  executed  on  that  day,  and  they,  in  reliance  upon  that 
representation,  having  acted  upon  it,  and  accepted  the  bond,  and 
allowed  Young  to  enter  upon  the  duties  of  his  office,  the  sureties  are 
now  estopped  from  denying*  the  truth  of  such  representation,  or 
showing  that  it  was  executed  upon  Sunday  instead  of  the  day  it 
bears  date,  j  Biglow  on  Estoppel,  480  et  seq. ;  Vinton  v.  Peck,  14 
Mich.  287.  Second.  It  is  almost  an  elementary  principle,  laid  down 
\  in  all  the  books,  that  a  bond  is  not  "executed"  until  it  is  delivered, 
for  delivery  is  of  the  essence  of  a  deed.  It  takes  effect  only  from 
execution  on  delivery,  and,  until  delivery,  it  is  not  a  contract,  and  is 
of  no  further  value  than  the  paper  upon  which  it  is  written.  This 
,  bond  not  having  been  delivered  until  the  following  Thursday,  the 
j  mere  signing  of  it  on  Sunday  does  not  affect  its  validity.  In  the 
proper  and  legal  sense  of  the  term,  it  was  not  "executed"  on  Sun- 
dav,  but  on  Thursday.  Com.  v.  Kendig,  2  Pa.  St.  448;  Bloxsome 
v.  Williams,  3  B.  &  C.  232;  Lovejoy  v.  Whipple,  18  Vt.  379;  Clough 
v.  Davis,  9  N.  H.  500;  Hill  v.  Dunham,  7  Gray,  543 ;  Pierce  v.  Rich- 
ardson, 37  N.  H.  306. 

Accord :  Franklin  Bank  v.  Cooper,  36  Maine  179 ;  City  of  Evansville  v. 
Morris,  87  Ind.  269,  44  Am.  Rep.  763;  Forst  v.  Leonard,  116  Ala.  82,  22  So. 
481. 

Although  the  date  of  a  bond  is  presumably  the  date  of  its  delivery,  proof 
of  the  actual  date  of  delivery  may  be  introduced  to  overcome  this  presump- 
tion. Reilly  v.  Dodge,  42  Hun  646,  4  N.  Y.  St.  446. 

Express  acceptance  or  approval  in  writing  is  not  necessary.  Delivery  to  and 
continued  possession  by  the  obligee  of  the  bond  will  raise  the  presumption 
that  the  bond  has  been  accepted.  Bostwick  v.  Van  Voorhis,  91  N.  Y.  353 ; 
Grim  v.  School  Directors,  51  Pa.  St.  219;  Mailers  v.  Crane  Co.,  92  111.  App. 
514;  Fiala  v.  Ainsworth,  63  Nebr.  1,  88  N.  W.  135,  93  Am.  St.  420;  Boyd  v. 
Agricultural  Ins.  Co.,  20  Colo.  App.  28,  76  Pac.  986. 

Failure  to  approve  the  bond  of  a  public  officer  as  required  by  law  will  not 
affect  its  validity.  In  Mowbray  v.  State,  88  Ind.  324,  it  is  said :  "Approval  of 
an  official  bond  is  not  required  for  the  benefit  or  protection  of  the  sureties ; 
and  however  important  it  might  be  for  one  asserting  his  rights  as  an  officer 
to  show  his  compliance  with  the  requirements  of  law  for  induction  into  office, 
the  statutory  provisions  for  the  approval  of  the  securities  given  by  him  will 
in  an  action  on  the  bond  against  a  surety  be  regarded  as  directory,  and  the 
complaint  thereon,  showing  a  breach,  will  not  be  bad  though  it  fail  to  state 
that  the  bond  was  approved.  The  fulfilment  of  the  purposes  for  which  such  a 
bond  is  required  by  law  should  not  be  dependent  upon  the  acts  or  omissions 
of  other  officers." 

Accord :  Boone  County  v.  Jones,  54  Iowa  699,  2  N.  W.  987,  7  N.  W.  155,  37 
Am.  Rep.  229;,People  v.  Huson,  78  Cal.  154,  20  Pac.  369. 


DELIVERY    AND    ACCEPTANCE  101 


/ 


JONATHAN  M.  DAIR  ET  AL.  v.  UNITED  STATES 
16  Wall  (U.  S.)  1,  21  L.  cd.  491  (1873). 


• 

The  case  is  fully  stated  by  the  court. 

Mr.  Justice  Davis  delivered  the  opinion  of  the  court. 

The  United  States  brought  an  action  of  debt  on  a  distiller's  bond, 
executed  by  Jonathan  M.  Dair,  and  William  F.  Sauks,  as  principals, 
and  by  Jajn^s^TJajirjmd  William  W.  Davidson,  as  sureties.  There 
was_no_dispute  as  to  the  right  to  recover  against  the  principals ;  but 
thej5ureties,  who  pleaded  separately,  denied  their  liability  upon  the 
bond;  and  upon  the  issues  thus  raised  by  them,  there  was  the  fol-  .• 
lowing  special  finding  by  the  court :  "That  said  James  Dair  and 
William  W.  Davidson  signed  said  writing  obligatory  upon  the  day 
\[M  its  date,  as  sureties  at  the  instance  of  Jonathan  M.  Dair,  one  of 
j'jLthe  principals,  but  that  it  was  signed  by  them  upon  the  condition  that 
[said  writing -obligatory  was  not  to  be  delivered  to  the  plaintiff  until 
it. should  be  executed  by  one  Joseph  P.  Cloud,  as  cosurety;  that 
said  writing  obligatory  upon  its  signing  by  them  upon  the  condition 
aforesaid,  was  placed  in  the  hands  of  said  principal,  Jonathan  Dair,  / 
who  afterward,  without  the  performance  of  that  condition  and  with-, 
r  \  out  the  consent  of  said  James  Dair  and  William  W.  Davidson  de- 
livered the  same  to  the  plaintiff'.  And  the  court  doth  further  find 
that,  when  the  bond  was  so  delivered,  it  was  in  all  respects  regular 
upon  its  face,  and  the  plaintiff  had  no  notice  of  the  condition."  As 
a  conclusion  of  the  law^uporrthese  facts,  judgment  was  rendered  in 
favor  of  the  United  States  against  all  the  parties  to  the  bond,  for  the 
amount  which  it  was  conceded  the  principals  owed  to  the  govern- 
ment.   This  writ  of  error  is  prosecuted  to  reverse  that  decision. 

It  must  be  conceded  that  courts  of  justice,  if  in  their  power  to  do 
so,  should  not  allow  a  party  who,  by  act  or  admission,  has  induced 
another  with  whom  he  was  contracting  to  pursue  a  line  of  conduct 
injurious  to  his  interests,  to  deny  the  act  or  retract  the  admission  in 
case  of  apprehended  loss.  Sound  policy  requires  that  the  person 
who  proceeds  on  the  faith  of  an  act  or  admission  of  this  character 
should  be  protected  by  estopping  the  party  who  has  brought  about 
this  state  of  things  from  alleging  anything  in  opposition  to  the  nat- 
ural consequences  of  his  own  course  of  action.  It  is,  accordingly, 
established  doctrine  that  whenever  an  act  is  done  or  statement  made 
by  a  party,  which  can  not  be  contradicted  without  fraud  on  his  part 
and  injury  to  others,  whose  conduct  has  been  influenced  by  the  act 
or  admission,  the  character  of  an  estoppel  will  attach  to  what  other- 
wise would  be  rnere  matter  of  evidence.  2  Smith,  L.  Cas.,  note  to 
the  Duchess  of  Kingston's  case. 

Why  should  not  this  principle  of  estoppel,  on  every  reason  of  jus- 
tice and  good  faith,  be  applied  to  the  covenant  on  which  this  action 


r£ 


102  THE    CONTRACT 

is  founded?  The  bond  was  in  all  respects  regular,  executed  accord- 
ing to  prescribed  forms,  and  accepted  by  the  officer  whose  duty  it 
was  to  take  it,  as  a  completed  contract.  There  was  nothing  on_tne 
face  of  the  paper  or  in  the  transaction  itself  to  put  the  officer  on  in- 
quiry, or  to  raise  even  a  suspicion  in  his  mind  that  a  condition  was 
annexed  to  the  delivery  of  the  instrument.  The  transaction  was  one 
of  ordinary  occurrence  in  the  administration  of  the  revenue  laws, 
and  if  the  officer  was  satisfied  of  the  sufficiency  of  the  indemnity, 
there  being  no  circumstances  to  create  distrust  that  the  principal 
obligors  who  tendered  the  bond  were  not  upright  men,  there  was 
nothing  left  for  him  to  do  but  to  take  it  and  issue  the  license.  This 
was  done,  and  the  government  will  be  greatly  prejudiced  if  the  sure- 
ties who  were  relied  on  to  perform  the  conditions  in  case  of  the  fail- 
ure of  the  principals,  can  defeat  a  recovery  on  the  ground  that  they 
did  not  intend  to  be  bound  unless  another  shared  the  responsibility, 
and  so  told  the  principal  obligors  who  solicited  their  signatures. 
But' they  did  not  inform  the  revenue  officer  of  this  condition,  and 
,  their  omission  to  do  so  then  estops  them  from  setting  it  up  now. 
The  silence  which  they  imposed  upon  themselves  at  the  time  makes 
their  present  conduct  culpable,  for  it  is  not  to  be  doubted  that  the  ?L 
officer  in  charge  of  this  business  would  have  acted  differently  if  the 
information  which  the  principals  received  had  been  communicated 
to  him.  In  the  execution  of  the  bond  the  sureties  declared  to  all 
persons  interested  to  know  that  they  were  parties  to  the  covenant 
and  bound  by  it,  and  in  the  belief  that  this  was  so  they  were  ac- 
cepted and  the  license  granted.  They  can  not,  therefore,  contravene 
the  statement  thus  made  and  relied  on  without  a  fraud  on  their  part 
and  injury  to  another,  and  where  these  things  concur  the  estoppel 
is  imposed  by  law.  As  they  confided  in  Dair  it  is  more  consonant 
with  reason  that  they  should  suffer  for  his  misconduct  than  the  gov- 
ernment, who  was  not  placed  in  a  position  of  trust  with  regard  to 
him. 

The  case  of  Pawling  v.  U.  S.,  4  Cranch,  219,  has  been  cited  as 
an  authority  against  the  position  taken  in  this  case ;  but  it  is  not  so, 
because  the  additional  securities  to  be  procured  in  that  case  were 
named  on  the  face  of  the  bond,  and  this  fact  is  stated  in  the  plea 


llcllllCU     Ull     L11C     laLC     Ui      UlC     UU11U,     ctllU     UUS      IdUL     IS     SldLCli     111     U1C     JJltcl. 

If  the  name  of  Joseph  P.  McCloud  appeared  as  a  cosurety  on  the  face 
of  this  bond,  the  estoppel  would  not  apply,  for  the  reason  that  the 
incompleteness  of  the  instrument  would  have  been  brought  to  the 
notice  of  the  agent  of  the  government,  who  would  have  been  put  on 
inquiry  to  ascertain  why  Cloud  did  not  execute  it,  and  the  pursuit 
of  this  inquiry  would  have  disclosed  to  him  the  exact  condition  of 
things. 

In  any  case,  if  the  bond  is  so  written  that  it  appears  that  several, 
were  expected  to  sign  it,  the  obligee  takes  it  with  notice  that  the1 
obligors  who  do  sign  it  can  set  up  in  defense  the  want  of  execution 


DELIVERY    AND   ACCEPTANCE  103 


X 


by  the  others,  if  they  agree  to  become  bound,  only  on  condition  that 

the  other  cosureties  joined  in  the  execution. 

We  are  aware  that  there  is  a  conflict  of  opinion  in  the  courts  of 

this  country  upon  the  point  decided  in  this  case,  but  we  think  we  are 

sustained  by  the  weight  of  authority.     At  any  rate,  it  is  clear  on 
J"  principle  that  the  doctrine  of  estoppel  in  pais  should  be  applied  to 
i  this  defense. 
I s  The  judgment  of  the  circuit  court  is  affirmed. 

Accord :  Taylor  County  v.  King,  73  Iowa  153,  34  N.  W.  774,  5  Am.  St.  666; 
State  v.  Peck,  53  Me.  284 ;  Columbia  Ave.  Trust  Co.  v.  King,  227  Pa.  308,  76 
Atl.  18;  Belden  v.  Hurlbut,  94  Wis.  562,  69  N.  W.  357,  37  L.  R.  A.  853 ;  Sellers 
v.  Territory,  32  Okla.  147,  121  Pac.  228;  State  v.  Potter,  63  Mo.  212,  21  Am. 
Rep.  440 ;  Tidball  v.  Halley,  48  Cal.  610 ;  Dun  v.  Garrett,  93  Tenn.  650,  27  S. 
W.  1011,  42  Am.  St.  937;  Fowler  v.  Allen,  32  S.  Car.  229,  10  S.  E.  947,  7  L.  R. 
A,  745. 


Jl^t 


%. 


& 


THE  PEOPLE  OF  THE  STATE  OF  NEW  YORK,  APPEL- 
LANTS, v.  HIRAM  W.  BOSTWICK  AND- OTHERS, 
RESPONDENTS  V": 

32  N.  Y.  445  (1865). 

The  facts  in  this  case  are  sufficiently  stated  in  the  opinion  of 
Judge  Campbell  to  enable  the  profession  to  understand  the  principles 
decided. 

Denio,  Ch.  J. :  The  effect  of  the  finding  of  facts  by  the  judge  is, 
i  that  the  covenant  on  which  the  suit  is  brought  was  signed  and  sealed 
by  the  defendants,  and  was  delivered  to  the  defendant  Bostwick  ; 
to  be  by  him  delivered  to  the  proper  officer  of  the  state,  when  and  in 
case  it  should  be  signed  by  Andrew  B.  Dickinson,  and  not  other- 
wise. Itwas  never  signed  by  Dickinson,  but  was  delivered  by  Bost- 
wick to~the  auditor  without  his  signature.  Bostwick  was  one  of 
the  sureties,  and  was,  moreover,  the  president  of  the  Bank  of  Corn- 
ing, tor  trie  benefit  of  which  bank  the  covenant  was  made.  The 
question  upon  these  facts  is  whether  the  instrument  ever  became 
operative  as  the  defendants'  deed. 

Certain  principles  having  a  bearing  on  the  case,  are  very  well 
established ;  where  a  deed  is  delivered  to  the  party  who  is  the  obligee 
of  covenantee,  it  is  impossible  to  annex  a  condition  to  such  deliv- 
ery. The  effect  of  the  instrument  must  then  be  determined  by  its 
language.  /This  is  a  part  of  the  great  conservative  rule  of  evidence, 
which  decfefes  that  the  terms  of  an  instrument  can  not  be  changed 
by  parol  proof.  •  If  it  could  be  qualified  or  avoided  by  proof  of  words 
made  use  of  at  the  time  of  the  delivery,  the  safeguard  which  the  law 
attaches  to  written  contracts,  would  be  overthrown ;  and  the  effect 
would  be  the  same  as  though  a  party  were  permitted  to  show  by 


104  THE    CONTRACT 

parol  that  the  actual  contract  -was  different  from  that  which  was 
manifested  by  the  language  of  the  writing. 

But  until  the  deed  is  delivered  to  the  party  in  whose  favor  it  is 
intended  to  operate,  or  to  some  person  in  his  behalf  and  for  his  im- 
mediate benefit,  it  is  in  the  power  of  the  parties  who  are  eventually 
to  be  bound  by  it,  although  they  have  signed  and  sealed  it,  to  with- 
hold the  delivery  altogether,  or  to  create  an  agency  for  its  custody, 
and  to  direct  its  delivery  upon  any  condition  or  contingency  which 
they  may  see  fit  to  prescribe.  Such  an  agency  may  be  general  or 
special.  If  the  custodian  be  the  general  agent  of  the  signer,  in  the 
business  to  which  the  instrument  relates — as  if  he  be  generally  au- 
thorized to  borrow  money  for  him  upon  securities  to  be  intrusted 
to  him,  his  delivery  of  a  particular  deed,  so  intrusted,  though  con- 
trary to  his  instructions,  would  bind  his  principals.  But  if  the  agency 
be  special,  if  it  relate  only  to  a  particular  document  which  he  was 
authorized  to  deliver  when  and  only  when  some  event  had  hap- 
pened which  the  party  had  chosen  to  prescribe  as  a  condition  to  the 
delivery,  the  placing  the  paper  in  the  possession  of  the  party  in 
whose  favor  it  was  drawn,  without  the  happening  of  that  event, 
would  be  an  unauthorized  act  and  a  nullity,  and  the  instrument 
would  not  become  the  deed  of  the  party  who  had  affixed  his  name 
and  seal  to  it.  While  it  remains  in  the  hands  of  the  custodian  under 
such  circumstances,  and  until  the  condition  upon  which  its  delivery 
depended  has  been  performed,  it  is  said  to  be  in  escrow,  and  is  ut- 
terly inoperative,  and  if  such  custodian  violate  the  terms  of  the  de- 
posit, and  deliver  the  deed  without  the  condition  having  been  per- 
formed, such  delivery  is  not  the  act  of  the  party  whose  signature 
and  seal  is  attached,  and,  as  I  have  said,  it  is  not  his  deed.  It  lacks'] 
one  of  the  circumstances  requisite  to  the  completion  of  every  deed,/ 
a  delivery  to  the  person  in  whose  favor  it  is  made. 

The  principles  thus  far  stated  are  fundamental  in  the  law  of  writ- 
ten evidence.    They  lead  to  the  determination  of  this  case  in  favor; 
of  the  defendants,  unless  one  or  both  of  the  special  circumstances 
relied  on  by  the  plaintiffs'  counsel  take  the  case  out  of  the  scope  of'^'/C 
those  general  principles.  * 

It  is  argued,  in  the  first  place,  that  by  committing  the  instrument, 
after  the  defendants  had  affixed  their  names  and  seals  to  it,  to  the 
custody  of  Mr.  Bostwick,  one  of  their  number,  with  authority  to 
deliver  it  to  the  auditor,  after  it  should  be  signed  by  Mr.  Dickinson, 
he  was  clothed  with  the  powers  of  a  general  agent  for  them,  and 
could  bind  them  by  a  delivery  not  authorized  by  the  instructions, 
which  the  other  signers  sought  to  make  conditions  of  the  delivery. 
But  I  am  of  opinion  that  he  is  to  be  regarded  as  the  special  agent 
of  each  of  the  persons  who  had  subscribed  the  paper :  none  of  them 
had  any  connection  with  the  enterprise  of  borrowing  the  money 
from  the  state  for  the  use  of  the  bank,  or  any  antecedent  relations 
with  each  other.    So  far  as  it  appears,  it  was  quite  indifferent  to 


DELIVERY    AND    ACCEPTA>.'CE  105 

them  whether  the  money  was  borrowed  or  not.  They  had  consented 
\  to „he  sureties  for  its  repayment,  if  Mr.  Dickinson  would  assume  the 
same  responsibility,  and  this  was  the  only  concern  they  had  in  the 
matter.  The  entering  into  the  contract  of  suretyship  was  an  individ- 
ual concern  with  each  of  the  proposed  sureties.  It  required  the  in- 
dividual assent  of  each  one  before  it  could  be  bound ;  and,  in  addi- 
tion to  such  assent,  that  he  should  become  individually  a  party  to  the 
deed  by  which  the  obligation  was  created.  Until  the  completion  of 
the  deed,  they  had  no  connection  with  each  other,  no  one  of  them 
could  do  any  act  to  commit  or  affect  the  other,  except  by  some  dis- 
tinct agreement  beyond  the  general  fact  that  each  had  consented, 
subject  to  the  condition  mentioned,  to  become  a  surety.  By  impos- 
ing the  condition  mentioned,  each  person  who  signed  said,  in  effect, 
this  paper  is  not  to  become  my  deed,  unless  at  the  same  time  it  be- 
comes the  deed  of  Mr.  Dickinson.  They  could  severally  dispense 
with  that  condition,  and  permit  a  delivery  which  would  make  it  the 
deed  of  those  who  so  consented,  but  no  one  of  them  could  dispense 
with  the  condition  so  to  affect  any  other  of  their  number.  But  the 
paper  must  be  left  in  the  hands  of  some  one,  unless  they  all  came 
into  the  presence  of  the  auditor.  It  might  have  been  committed  to 
a  stranger,  under  the  same  condition  which  was  attached  to  it  in  the 
hands  of  Mr.  Bostwick,  and  if  this  had  been  done  and  that  person 
had  violated  his  trust,  it  can  not  be  pretended  that  the  delivery  by 
him  would  have  been  of  any  avail.  It  would  be  the  common  case  of 
a  delivery  in  escrow  with  the  condition  unperformed.  If  an  agent, 
other  than  one  of  the  signers,  had  received,  and  had  taken  it  to  the 
auditor's  office,  it  may  or  it  may  not  be  that  the  officer  would  have 
been  more  reluctant  to  receive  it  than  he  was  when  it  was  brought 
by  one  of  the  cosureties.  Suppose  some  clerk  of  the  bank,  not  a 
party  to  the  instrument,  had  taken  it  to  the  auditor,  and  had  stated 
that  he  had  been  sent  with  it  by  the  assent  of  all  the  parties,  to  de- 
liver the  paper  and  consummate  the  loan,  he  would  have  been  a 
stranger  to  the  contract  within  the  largest  sense  of  that  word,  and 
yet  it  can  not  be  doubted  but  that  the  sureties  would  be  entitled  to 
show  that  he  received  it  to  hold  as  an  escrow  until  other  sureties  had 


signed.  The  case  does  not  depend  upon  the  degree  of  likelihood 
which  the  character  of  the  agent  might  furnish  to  the  party  receiv- 
ing the  paper,  that  he  really  possessed  the  power  which  he  claimed, 
but  upon  the  authority  actually  committed  to  him.  The  auditor  must 
be  supposed  to  have  known  that  the  character  of  Mr.  Bostwick,  as 
one  of  the  cosigners,  and  as  the  president  of  the  bank,  did  not  em- 
power~Tiim  to  do  any  act  which  should  bind  the  other  cosigners. 
There  was  nothing,  it  is  true,  in  the  circumstances  specially  to  put 
him  upon  his  guard,  or  to  raise  a  suspicion ;  but  at  the  same  time 
there  was  nothing  done  by  the  defendants  to  mislead  the  officer. 
To  illustrate  the  position,  let  us  suppose  that  the  bond  had  been 
signed  and  left  at  the  office  of  the  scrivener  who  drew  it,  the  signers 


106 


THE    CONTRACT 


not  having  yet  concluded  to  perfect  the  act  by  delivery  and  not  in- 
tending to  do  so  until  they  should  receive  an  indemnity,  and  that  one 
of  those  who  had  signed  it  should  clandestinely  take  it  and  proceed 
to  the  auditor's  office,  and  he,  not  suspecting  any  irregularity,  had 
received  the  delivery  and  advanced  the  money.  The  appearances 
which  in  such  a  case  would  be  presented  to  that  officer  would  be 
precisely  thesame  with  those  existing  in  this  case.  He  would  have 
received  the  instrument  from  the  hands  of  one  who  would  have  been 
naturally  enough  intrusted  with  it  for  absolute  delivery ;  and  yet  no 
one  would  say  that  it  would  be  the  deed  of  those  whose  names  were 
subscribed.  This  shows  that  there  is  nothing  in  the  fact  that  it  was 
presented  by  one  who  had  signed  it,  which  would  authorize  the 
officer  to  assume  that  he  had  authority  to  deliver  it  for  the  others. 
If  he  was  interested  as  principal  the  argument  would  be  the  same. 
The  case  is  distinguishable  from  a  bill  or  note  negotiable  to  bearer 
or  order;  for  there  an  invitation  is  held  out  to  every  one  that  they 
may  acquire  that  character  by  receiving  it  for  value  from  one  who 
has  been  intrusted  with  it.   This  is  a  peculiarity  of  commercial  paper. 

It  has  been  truly  argued  that  upon  these  principles  great  caution 
would  be  required  of  one  receiving  a  sealed  instrument  from  one  of 
several  parties  purporting  to  have  executed  it.  If  our  decision 
should  strongly  inculcate  the  necessity  of  prudence  and  care  in  such 
transactions,  it  would  not  in  my  opinion  be  hostile  to  sound  policy. 
Men  are  easily  enough  led  into  suretyships  of  this  kind,  without  the 
establishment  of  artificial  rules  to  bind  them  against  their  consent. 
After  all,  business  men  must  and  do  generally  rely  much  upon  the 
personal  character  of  others  with  whom  they  enter  into  transactions, 
but  in  this  and  similar  cases  they  must  be  permitted  to  act  upon 
their  own  proper  peril,  and  not  seek  to  cast  the  loss  upon  another  if 
they  misjudge.  The  principle  that  where  one  of  two  innocent  par 
ties  must  suffer,  he  who  has  put  it  in  the  power  of  a  third  person 
to  commit  the  fraud  must  sustain  the  loss,  is  not  one  of  universal 
application,  if  the  language  be  taken  in  a  popular  sense.  In  such 
cases  the  one  who  claims  the  benefit  of  the  rule  must  not  himself  be 
guilty  of  negligence. 

In  the  next  place  it  is  argued  that  the  circumstance  that  the  in- 
strument did  not  contain  any  names  of  parties  covenanting,  except 
those  who  had  actually  signed  the  paper,  distinguishes  the  case  from 
the  rules  which  have  been  mentioned.  No  doubt  that  was  a  feature 
in  the  paper  calculated  to  avert  suspicion  ;  or,  in  other  words,  the 
presence  of  names  in  the  body  of  the  bond,  of  persons  who  had  not 
signed  would  have  been  likely  to  lead  to  inquiry.  But  yet  it  is  very 
certain  that  such  an  instrument  would,  notwithstanding,  have  been 
the  deed  of  the  parties  who  had  actually  signed  and  delivered  the 
document,  or  had  authorized  it  to  be  delivered ;  and  on  the  other 
hand,  parties  who  had  duly  signed  and  delivered  would  have  been 
bound,  although  their  names  had  not  been  written  in  the  body  of  the 


k 


DELIVERY    AND    ACCEPTANCE  107 

instrument.  If  the  question  were  one  of  greater  or  less  inattention 
/  on  the  part  of  the  auditor,  the  circumstance  relied  on  would  have 
considerable  weight.  But  it  is  a  question/ of  power  in  Bostwick  to 
deliver  the  bond  in  the  state  it  was,  when  he/had  been  instructed  to 
withhold  the  delivery  until  Dickinson  hafl  signed.  Nothing  short  of 
/  an  estoppel  could  preclude  the  defendants/from  setting  up  that  trie 
delivery  was  unauthorized.  The  leaving  me  paper  in  a  state  which 
would"  permit  Bostwick  plausibly  to  ass/ert  that  it  had  been  signed 
by  all  the  persons  who  were  expected/ro  be  sureties  falls  far  short. 
of  creating  an  estoppel.  Thg_  auditor \nad  it  in  his  power  to  satisfy 
h^mself__as__to  his  authority  and  he  should  have  done  so.  I  have 
looked  carefully  at  the  several  cases  which  have  been  referred  to  by 
the  respective  counsel.  The  counsel  for  the  state  has  referred  to  a 
case  decided  by  the  Supreme  Court  of  Kentucky  nearly  if  not  fully 
in  point  in  his  favor ;  the  only  distinction  being,  which  I  do  not  think 
material,  that  the  instrument  was  left  in  the  possession  of  the  prin- 
cipal in  the  bond  for  whose  benefit  it  was  prepared.  The  delivery 
to  him  by  the  surety,  though  upon  condition  that  another  party 
should  sign,  was  held  to  be  equivalent  to  a  delivery  to  the  obligee, 
because,  as  it  is  said,  it  enabled  him  to  apply  it  to  the  purpose  for 
which  it  was  designed.  (Miller  v.  Parker,  2  Mete.  608.)  The  cases 
of  Bubler  v.  Hamilton  (2  Dess.  Ch.  S.  C.  226)  and  Graner  v. 
Neiber  (10  Smee.  &  Mars.  9),  also  relied  on,  did  not  present  the 
precise  question,  and  they  were  both  decided  on  other  grounds. 
Camberledge  v.  Lawson  (40  Eng.  L.  &  E.  228)  arose  on  the  plead- 
ings and  was  decided  against  the  sureties  on  the  ground  that  the 
plea  did  not  set  up  a  delivery  of  the  paper  as  an  escrow,  but  only 
that  the  defendant  signed  it  on  the  faith  that  other  parties  would 
execute  it.  It  seems  to  have  been  conceded  that  if  the  facts  found 
in  this  case  had  been  stated  in  the  pleading,  it  would  have  been  shown 
a  defense. 

The  case  of  Millett  v.  Parker  is  not  only  irreconcilable  with  prin- 
ciple, but  is  opposed  by  a  strong  current  of  authority,  which  sus- 
tains the  defense  which  has  been  interposed. 

In  Pawling  v.  The  United  States  (4  Cranch  218),  the  sureties  in 
an  official  bond  defended  on  the  averment  that  the  instrument  was 
not  to  have  been  delivered  unless  signed  by  other  parties  Xs  sureties. 
It  had  been  left  with  the  principal  signer  to  procure  the  signatures 
of  the  other  parties.  The  point  was  expressly  ta_kprl  "that  the  de- 
livery, as  an  escrow,  ought  to  have  been  to  a  third  person,  and  not 
to  Bellinger,  the  principal  obligor."  It  was  held  on  a  demurrer  to 
evidence,  the  opinion  being  given  by  Chief  Justice  Marshall,  that  the 
facts,  if  proved,  constituted  a  defense.  Lovett  v.  Adams  (3  Wend. 
380)  was  an  action  on  a  bond  with  nine  sureties.  Several  of  them 
signed  on  a  condition  that  it  should  not  be  delivered  until  certain 
conditions  had  been  performed.  The  instrument  seems  to  have  been 
left  with  the  others,  who  waived  the  conditions  and  delivered  it; 


108  THE    CONTRACT 

and  it  was  held  that  the  evidence  was  competent  to  establish  a  de- 
fense. Fletcher  v.  Austin  (11  Verm.  447)  ;  Johnson  v.  Butler  (4 
Barn.  &  Aid.  440)  ;  State  Bank  v.  Evans  (3  Green  (N.  J.)  155)  and 
Bibb  v.  Reed  (3  Ala.  38)  are  all  cases  sustaining  the  view  I  have 
taken.  In  the  case  in  New  Jersey  the  bond  was  delivered  to  the 
principal,  who  delivered  it  to  the  obligee,  and  it  was  said  by  the 
court  that  it  was  the  same  thing  as  though  it  had  been  delivered  to 
a  stranger. 

I  am  for  affirming  the  order  of  the  general  term  and  rendering 
judgment  absolute  for  the  defendants. 

Judgment  affirmed,  and  judgment  absolute  for  defendants. 

Accord :    Guild  Register  &  Co.  v.  Thomas,  54  Ala.  414,  25  Am.  Rep.  703 ;  ^ 
King  v.  State,  81  Ala.  92 ;  State  v.  Allen,  69  Miss.  508,  10  So.  473,  30  Am.  St. 
563. 

The  rule  laid  down  in  the  case  of  People  v.  Bostwick  has  met  with  severe 
criticism  in  some  cases.  See  Dunn  v.  Garrett,  93  Term.  650,  27  S.  W.  1011,  42 
Am.  St.  937 ;  Deardorff  v.  Foresman,  24  Ind.  492 ;  White  v.  Duggan,  140 
Mass.  18,  2  N.  E.  110,  54  Am.  Rep.  437;  Russell  v.  Freer,  56  N.  Y.  71. 


FRANK  NOVAK  ET  AL.,  APPELLEES,  v.  JOSEPH 
PITLICK,  APPELLANT 

VSSJowa r28BT94-J&4£.  916,  98  Am.  St.  360  (1903). 

Leaver,  J. :  The  plaintiffs  allege  that  they  are  associated  as  an 
mincorporated  body  or  company,  knowrr--as.  the  Alert  Hose  Com- 
pany, at  Iowa  City,  Iowa ;  that  one  J.  J.  Fryauf  was  by  said  com- 
pany appointed  to  act  as  its  treasurer  for  a  'term  of  one  year  from 
May  1,  1899;  that,  to  secure  the  faithful  performance  of  said  trust, 
Fryauf  executed  and  delivered  to  the  company  a  bond  in  the  penal 
sunt  of  $200,  with  the  defendant  as  his  surety ;  that  said  treasurer 
has  failed  and  refused  to  account  for  and  pay  over  the  moneys  re- 
ceived by  him  in  said  office,  to  the  amount  of  more  than  $200,  and 
recovery  is  asked  in  that  sum  upon  said  bond.  The  bond  sued  upon 
is  in  the  following  form: 

"Know  all  men  by  these  presents  that  we,  J.  J.  Fryauf  as  principal 

and  as  sureties,  all  of  Johnson  county,  state  of  Iowa,  are 

held  and  firmly  bound  unto  the  Alert  Hose  Company,  of  Iowa  City, 
Iowa,  in  the  sum' of  two  hundred  dollars,  well  and  truly  to  be  paid 
to  said  Alert  Hose  Company.  The  condition  of  this  obligation  being 
that  whereas,  said  J.  J.  Fryauf  was  on  the  second  day  of  May,  1899, 
duly  elected  to  the  office  of  treasurer  of  said  Alert  Hose  Company, 
said  term  beginning  the  first  Tuesday  in  May,  1899,  and  expiring  the 
first  Tuesday  in  May,  1900. 

"Now,  if  the  said  J.  J.  Fryauf  shall  pay  over  or  cause  to  be  paid 
over  and  returned  to  the  said  Alert  Hose  Company  or  its  authorized 


DELIVERY   AND   ACCEPTANCE  109 

officers  all  money  and  property  coming  into  his  hands  as  such  treas- 
urer at  the  end  of  his  term  of  office,  then  this  obligation  be  null  and 
void,  otherwise  to  remain  in  full  force  and  virtue. 

"Witness  our  hands  this day  of  February,  1900. 

"(Stamp.)"  "(Signed)     Joseph  Pitlick. 

The  defendant,  by  answer,  denied  the  claim  of  plaintiffs  gener- 
ally, and  further  alleged  that  he  signed  the  bond  upon  condition 
Ithat  it  should  not  T5e  delivered  until  it  was  signed  by  the  principal, 
•       /Fryauf,  and  another  surety,  but,  in  violation  of  said  conditions,  it 
was  given  to  the  plaintiffs  without  such  signatures,  and  showing 

•  upon  its  face  that  it  was  incomplete,  imperfect,  and  prematurely 
delivered.  On  motion  of  the  plaintiffs,  more  or  less  of  the  affirmative 

\allegations  of  the  answer  were  stricken  out.  Owing  to  obscurity  of 
statement  in  the  motion,  the  precise  extent  and  scope  of  this  order 
is  not  clear ;  but  this  is  not  very  material,  as  we_  think  the  principal 
point  made  by  the  appellant  is  available  under  his  denials. 

T  The  plea  based  upon  the  alleged  condition  that  the  signature 
of  another  surety  should  be  obtained  before  delivering  the  bond  un- 
doubtedly presents  a  good  defense, /if  it  be  shown  that  the  obligee  , 
received  the  instrument  under  such  circumstances  as  to  be  charge- 
able with  notice  of  the  condition.  Bank  v.  Boddicker,  117  Iowa  407. 
It  is  claimed  by  appellees  that  no  evidence  was  produced  in  support 
of  this  defense,  and  there  was  therefore  no  error  in  failing  to  submit 
the  same  to  the  jury.  As  the  conclusion  announced  in  the  following 
paragraph  is  decisive  of  the  appeal,  we  think  it  unnecessary  to  enter 
upon  any  discussion  of  this  phase  of  the  record. 

2.  We  proceed,  then,  to  consider  the  effect  of  the  conceded  fact 
that  the  bond,  though  purporting  to  be  the  bond  of  Fryauf,  as  the 
principal  obligor,  and  though  declared  upon  by  plaintiffs  in  their 

"petition  as  having  been  executed  by  him,  was  never  in  fact  so  exe- 
cuted.   The  body  of  the  instrument  recites  the  undertaking  of  J.  J. 

/Fryauf  as  principal  and as  sureties,  and  is  signed  by  Joseph 

-"       Pitlick  alone;  and  we  have  first  to  inquire  whether  such  obligation 

,  is  enforceable  against  the  surety  in  the  absence  of  an  affirmative 
showing  of  a  consent  on  his  part  to  its  delivery  in  that  condition. 
While  some  variance  may  be  found  in  the  adjudicated  cases  upon 
this  question,  the  great  weight  of  the  authorities  is  adverse  to  the 
position  of  the  appellees.  It  is  undoubtedly  true  that  one  may  bind 
himself  for  the  debt  or  default  of  another  without  joining  with  him 
in  the  same  instrument  the  person  for  whom  he  becomes  surety  or  \ 
guarantor;  but_where  an  instrument  is  drawn  By  which  one  person 

I  isjjz-be~ b©ufiff~as '  f  he  principal  obligor,  and  another  is  bound  as  su- 
rety, and  undertakes  that  his  principal  shall  faithfully  discharge  the 
terms  of  the  obligation  therein  assumed  by  him,  it  is  almost  univers- 
ally held  that  the  surety  can  not  be  held  liable  upon  such  contract  if 
iLbejiotjigned  by  the  principal.     By  many  authorities  such  bond  is 


110  THE    CONTRACT 

held  to  be  entirely  void,  while  others  hold  that  the  obligee  may  en- 
force it  by  affirmatively  showing  that  the  surety  consented  to  its  de- 
livery without  the  signature  of  his  principal.  Such  an  instrument 
shows  its  incompleteness  upon  its  face.  The  first  glance  at  It  reveals 
the  absence  of  the  principal  party  to  the  obligation,  and  puts  the 
obligee  upon  inquiry  as  to  the  reason  for  its  delivery  in  that  defective 
condition.  It  avails  nothing  to  say  that  the  principal  is  bound  to 
account  for  the  funds  in  any  event,  for,  whatever  his  implied  liability 
by  virtue  of  his  fiduciary  relation  to  the  obligee,  he  is  not  bound  by 
the  bond  which  he  has  never  signed,  and  no  recovery  can  be  had' 
against  him  thereon.  'By  the  express  wording  of  the  contract  the 
bond  was  to  be  the  bond  of  Fryauf,  and  it  was  for  Fryauf's  per- 
formance of  the  bond  which  defendant  undertook  to  stand  as  surety. 
The  obligation  of  a  surety  is  not  to  be  extended  by  implication.  He  J 
is  entitled  to  stand  upon  the  strict  terms  of  his  agreement.  Walsh 
v.  Bailie,  10  Johns.  180;  Gahn  v.  Niemcewicz's  Exrs.,  11  Wend. 
312;  United  States  v.  Boyd,  15  Pet.  187  (10  L.  ed.  706;  Mid.  Nat. 
Bank  v.  Richards,  55  Nebr.  682  (76  N.  W.  Rep.  530).  In  Bean  v. 
Parker,  17  Mass.  594,  a  bail  bond  was  given  for  the  release  of  a 
debtor  under  civil  arrest,  but  the  instrument  was  not  signed  by  the 
principal.  Upon  action  brought  against  the  surety  it  was  held  that 
no  recovery  could  be  had.  It  is  there  said :  "It  is  essential  to  a  bail 
bond  that  the  party  arrested  should  be  principal.  It  is  recited  that 
he  is,  and  the  instrument  is  incomplete  and  void  without  his  signa- 
ture. The  remedy  of  the  sureties  against  the  principal  would  wholly 
fail  or  be  much  embarrassed  if  such  an  instrument  should  be  held 
binding."  In  Wood  v.  Sampson,  2  Pick.  24,  suit  was  brought  upon 
an  administrator's  bond,  signed  by  the  surety  only,  and  it  was  held 
the  action  could  not  be  maintained. 

The  same  principle  is  announced  by  the  Minnesota  court  in  refer- 
ence to  a  notary's  official  bond.    Martin  v.  Hornsby,  55  Minn.  187 
(56  N.  W.  751).    Also  to  an  appeal  bond.    State  v.  Haarle,  26  N. 
W.  906.   The  defects  in  these  bonds  were  practically  identical  with 
the  one  now  under  consideration.    In  the  last-cited  case  it  is  said : 
"It  is  not  the  obligation  of  the  principal,  for  he  did  not  sign  it.    It 
did  not,  so  far  as  appears,  bind  the  sureties,  because,  from  the  terms 
of  the  instrument,  the  obligation  which  they  assumed  was  that  of 
sureties  for  another,  who  was  principal  obligor.    It  was  not,  there- 
fore, of  effect  as  a  bond  of  even  those  who  executed  it."    In  Michi- 
gan a  like  rule  is  observed.   Hall  v.  Parker,  37  Mich.  590 ;  Johnson 
v.  Kimball,  39  Mich.   187.    In  the  latter  case  Campbell,  J.,  says : 
"The  obligation  of  a  surety  can  not  fairly  be  extended  beyond  the   . 
scope  of  his  written  contract,  inasmuch  as,  under  our  statute  of  I 
frauds,  his  agreement  must  be  in  writing;  and  we  think  that,  pre-f 
sumptively,  at  least,  where  the  contract  calls  for  the  signature  of 
other  parties,  the  instrument  is  to  be  deemed  inchoate  and  imperfect^ 
until  they  also  sign  it.     *     *     *     Where  several  names  are  written 


DELIVERY   AND   ACCEPTANCE  111 

as  obligors,  and  one  of  them  is  called  upon  to  sign  it,  he  does  so  upon 
an  implied  understanding  that  he  can,  in  case  of  being  held  respon- 
sible, not  only  have  his  right  of  contribution,  but  a  further  right 
to  have  it  capable  of  proof  and  enforcement  according  to  the  terms 
of  the  contract,  as  it  purports  to  be  drawn  up.  *  *  *  And  if  it 
is  claimed  that  he  has  waived  them  or  become  estopped  from  relying 
on  them,  the  burden  of  proof  ought  not  to  be  laid  upon  him  to  show 
that  there  has  been  no  variation,  but  upon  the  plaintiff  to  show  what 
is  substantially  a  new  contract." 

In  a  late  decision  the  Supreme  Court  of  Massachusetts  reaffirms 
the  case  of  Bean  v.  Parker,  already  cited,  saying:  "An  instrument 
like  that  in  suit  ordinarily  is  and  should  be  executed  by  all  the  in- 
tended parties.  It  was  for  plaintiffs  to  show  that,  although  not  thus 
executed,  the  defendant  had  consented  to  its  delivery  under  such 
circumstances  that  it  would  bind  him,  even  if  it  were  inoperative  and 
invalid  as  against  the  principal."  Goodyear  Co.  v.  Bacon,  151  Mass. 
460.  Many  other  courts  have  acknowledged  the  correctness  of  this 
principle.  "If  the  bond  contains  the  names  of  other  obligors,  and 
is  delivered  without  the  signature  of  all,  the  obligee  must  inquire 
whether  those  who  have  signed  consent  to  its  being  delivered  with- 
' ,'f.f  out  the  signature  of  the  others."  Fletcher  v.  Austin,  11  Vt.  447. 
See  also  Hall  v.  Smith,  14  Bush  604;  Board  v.  Sweeney,  1  S.  Dak. 
642;  Sacramento  v.  Dunlap,  14  Cal.  421 ;  People  v.  Hartley,  21  Cal. 
585;  Nash  v.  Fugate,  24  Grat.  213;  Markland  v.  Kimmel,  87  Ind. 
572 ;  Sharp  v.  United  States,  4  Watts  21 ;  Duncan  v.  United  States, 
7  Pet.  435;  Pawling  v.  United  States,  4  Cranch  219;  Clements  v. 
Cassilly,  4  La.  Ann.  380. 

Other  cases,  while  denying  that  a  bond  which  has  been  delivered 
without  being  executed  by  all  the  parties  named  in  the  body  of  the 
instrument  is  presumptively  void,  adhere  to  the  rule  that  its  incom- 
plete appearance  has  the  effect  to  cast  upon  the  obligee  the  burden  of 
showing  that  the  delivery  was  made  by  the  consent  of  the  party 
signing  it,  or  under  circumstances  estopping  him  to  deny  such  con- 
sent. Mullen  v.  Morris,  43  Nebr.  591  ;  Midland  Nat.  Bank  v.  Rich- 
ards, 55  Nebr.  682;  Bank  v.  Evans,  15  N.  J.  L.  155.  These  holdings 
are  in  no  manner  inconsistent  with  the  rule  announced  by  us  in 
Benton  County  Bank  v.  Boddicker,  105  Iowa  548,  and  sustained  by 
many  eminent  authorities,  that  where  the  bond  is  perfect  on  its  face, 
and  the  obligee  receives  it  without  notice  of  any  condition  attached 
to  its  execution  by  a  surety,  it  is  binding  upon  the  latter,  notwith- 
standing his  signature  was  obtained  upon  the  assurance  that  others 
were  also  to  join  in  the  obligation.  Carter  v.  Moulton,  51  Kans.  9; 
State  v.  Allen,  69  Miss.  508;  Dair  v.  United  States,  16  Wall.  (U. 
S.)  1 ;  McCormick  v.  Bay  City,  23  Mich.  457. 

Under  the  law  as  indicated  by  the  authorities  we  have  cited  we 
think  there  can  be  no  recovery  upon  the  bond  in  suit  in  the  absence 
of  an  affirmative  showing  by  plaintiffs  that  the  surety  consented  to 


f      0^y> 


112  THE    CONTRACT 

its  delivery  in  its  incomplete  and  defective  condition.  From  this 
conclusion  it  follows  that  the  trial  court  erred  in  charging  the  jury, 
as  a  matter  of  law,  that  the  bond  was  binding  upon  the  appellant, 
rendering  him  liable  to  the  amount  of  the  penalty  therein  named  for 
any  default  of  Fryauf  as  treasurer.  Most  of  the  errors  assigned 
upon  the  introduction  of  testimony  are  governed  by  this  conclusion/ 
and  need  not  be  separately  considered.  Other  assignments  pertain 
to  questions  not  likely  to  arise  upon  a  retrial. 
The  judgment  of  the  district  court  is  reversed. 

See  also  Pawling  v.  United  States,  4  Cranch  (U.  S.)  219,  2  L.  ed.  601 ;  Al- 
len v.  Marney,  65  Ind.  398,  32  Am.  Rep.  73 ;  Hessell  v.  Johnson,  63  Mich.  623, 
30  N.  W.  209,  6  Am.  St.  334;  State  v.  Churchill,  48  Ark.  426,  3  S.  W.  352, 
880;  Cutler  v.  Roberts,  7  Nebr.  4,  29  Am.  Rep.  371 ;  Ney  v.  Orr,  2  Mont.  559; 
Husak  v.  Clifford,  179  Ind.  173,  100  N.  E.  466. 

In  those  jurisdictions  holding  that  the  failure  of  the  principal  to  sign  the1 
bond  does  not  affect  its  validity,  it  is  held  that  the  absence  of  such  signature 
by  the  principal  will  not  operate  as  notice  of  any  conditions  attached  to  its 
delivery,  although  the  failure  of  one  who  is  mentioned  as  surety  in  the  bond 
to  execute  it  will  have  that  effect.  Star  Grocery  Co.  v.  Bradford,  70  W.  Va. 
497,  74  S.  E.  509,  39  L.  R.  A.  (N.  S.)  184. 

For  other  matters  in  the  form  of  the  obligation  which  will  put  the  obligee 
on  notice,  see  Hendry  v.  Cartwright,  14  N.  Mex.'  72,  89  Pac.  309,  8  L.  R.  A. 
(N.  S.)  1056. 


SECTION  8.    COMMENCEMENT  AND  DURATION  OF 

LIABILITY 


Al 


ABRAHAM  MYERS  v.  THE  UNITED  STATES 

1  McLean  493  (1839). 

Opinion  of  the  Court 

The  action  in  the  district  court  was  brought  on  a  penal  bond  fory 
fifteen  hundred  dollars,  given  by  Peter  Wilson,  Abraham  Mygxs) 
and  others,  securities,  conditioned  that  the  said  Wilson  should  fait! 
fully  perform  his  duties  as  receiver  of  public  moneys,  at  Steube 
ville,  in  the  state  of,  Ohio.    The  bond  was  dated  22d  Septembe'r, 
1820.    The  breach  assigned  is,  that  Wilson  received  a  large  sum  of 
money,  to  wit,  the  sum  of  fifteen  thousand  dollars,  which  he  failed 
to  pay  over  or  account  for  to  the  government,  as  he  was  bound  to  do. 

The  bond  on  which  this  action  was  brought  is  dated  22d  Septem-  ' 
ber,  1820,  and  the  first-  question  that  arises  is,  whether  the/sureties  "7  <j 
in  this  bond  can  be  held  liable  for  any  prior  defalcations  an.  Wilson,.  ^ 
the  receiver.   The  answer  is,  that  the  sureties  are  bound  for  a  faith- 
ful discharge  of  the  duties  of  receiver,  from  the  date]/f  the  bond  j  % 
and  not  that  he  had  performed  those  duties.    If  the  government 
intended  the  bond  to  cover  the  official  responsibility  of  Wilson  in 


DURATION    OF    LIABILITY  113 


; 

time  past,  as  well  as  for  time  to  come,  its  language  would  have  been 
adapted  to  such  an  object ;  and  the  sureties  would  have  had  due  no- 
tice of  the  extent  of  their  liability. 

The  obligation  of  a  surety  is  a  matter  of  strict  law,  and  can  never 
arise  from  implication.  The  bond  must  speak  for  itself,  and  its 
language  can  never  be  extended  or  altered,  to  the  injury  of  the 
surety. 

But  it  is  insisted  that  the  transcript  shows  a  large  balance  due 
at  the  date  of  the  bond,  which  the  receiver  was  bound  to  pay  over  to 
the  government;  and  a  failure  to  do  this  is  a  failure  of  official  duty, 
for  the  due  performance  of  which  the  sureties  in  this  bond  are 
bound. 

The  transcript,  it  is  true,  shows  that  Wilson  was  a  defaulter  in  a 
large  sum  at  the  time  this  bond  was  executed,  and  which  he  should 
have  paid  over  before  its  execution  to  the  government. 

Now  can  the  sureties  to  this  bond  be  held  responsible  on  this 
evidence  ? 

The  receipt  of  the  money  by  the  receiver  may  be  admitted,  but 
suppose,  as  the  fact  probably  was,  that  he  had  applied  it  to  objects 
of  a  private  nature  before  the  execution  of  the  bond,  would  any 
one  contend  that  the  sureties  are  responsible  for  such  misapplication 
of  the  public  money? 

The  default  in  this  view  was  complete  before  the  date  of  the  bond, 
and  the  fund  was  misapplied.  There  could,  therefore,  be  no  liability 
of  the  sureties  under  such  circumstances,  unless  the  bond  provided 
expressly  for  the  case.  And  unless  there  was  more  evidence  before 
the  jury  than  that  which  is  found  on  the  transcript,  the  defendant 
below  could 4iet  be  charged  with  any  parr  of  this^defalcation./^ 

It  may  be  admitted,  if  the  governmem  had  shown  that  the  whole 
or  any  part  of  the  balance  due,  at  the  date  of  the  bond,  came  into 
the  hands  of  the  receiver  subsequent  to  the  date  of  the  bond,  the 
sureties  might  be  held  responsible  for  the  payment  of  the  amount 
received.  Or  if  it  had  been  shown  that  the  balance  was  in  the  hands 
of  the  receiver,  not  presumptively  but  in  fact,  when  the  bond  was 
given,  there  would  be  ground  on  which  to  insist  that  the  sureties  are 
liable.  But  there  appears  to  have  been  no  evidence  to  the  jury  that 
the  balance  was  in  the  hands  of  the  receiver  at  the  date  of  the  bond ;,  • 
or  that  it  came  into  his  hands  subsequently. 

I  am  aware  that  this  might  have  been  set  up  as  a  matter  of  de- 
fense. But  I  am  inclined  to  think  that  it  is  not  incumbent  on  the 
defendant  to  show  the  misapplication  of  moneys  received,  and  for 
which  the  receiver  was  in  default  prior  to  the  execution  of  the  bond. 

It  appears  to  me  that  when  the  government  seeks  to  make  a  surety 
responsible  for  a  balance  due,  at  the  time  the  bond  is  executed,  it ) 
must  show  the  money  was  in  the  hands  of  the  principal  when  the 
surety  became  bound. 
8— De  Witt. 


C7/^  <-"- —  J***" — 

114  THE    CONTRACT 

The  court  in  the  case  of  Farrar  &  Brown  v.  The  United  States,  5 
Peters  289,  say:  "We  feel  no  difficulty  in  affirming  that  for  any 
sums  paid  to  Rector  prior  to  the  execution  of  the  bond,  there  is  but 
one  ground  on  which  the  sureties  could  be  held  answerable  to  the 
United  States,  and  that  is  on  the  assumption  that  he  still  held  the 
money  in  bank  or  otherwise.  If  still  in  his  hands,  he  was,  up  to  that 
time  bailee  to  the  government;  but  upon  the  contrary  hypothesis,  he^  v 
had  become  a  debtor  or  defaulter  to  the  government  and  his  offense  ^/ 

was  already  consummated.  [If  intended  to  cover  past  derelictioiy    H 

the  bond  should  have  been  made  retrospective  in  its  langviage~.  Thej 
sureties  have  not  undertaken  against  his  past  misconduct."  And  the" 
court  held  that  the  court  below  erred  in  not  suffering  the  defendant 
to  prove  the  misapplication  of  the  money  before  the  date  of  the 
bond.  But  the  question  was  not  raised  whether  it  was  not  incumbent 
on  the  government  to  show  the  amount  of  money  in  the  hands  of  the 
surveyor  at  the  date  of  the  bond.  This  evidence  is  essential  to  the 
liability  of  the  surety;  and  I  am  inclined  to  think  that  proof  of  the 
defalcation  only  does  not  fix  this  liability.  The  default  being  prior 
to  the  bond,  the  government  must  show  that  the  money  was  in  the 
hands  of  the  principal  at  the  date  of  the  bond.  And  this  upon  the 
simple  ground  that  the  surety  does  not  undertake  to  account  for 
prior  defaults,  but  for  those  which  may  subsequently  occur. 

In  the  case  cited  the  fund  was  placed  in  the  hands  of  the  surveyor 
for  disbursements,  but  in  the  case  under  consideration  \the  receiver 
was  bound  to  pay  over  the  money,  which  he  failed  to  do ;  and  for_  ~ 
such  failure  I  hold  a  subsequent  surety  is  not  bound,  unless  the 
bond  be  retrospective  in  its  conditions,  or  the  money  is  shown  to  be 
in  the  hands  of  the  receiver  when  the  bond  was  given. 

In  9  Cranch  227,  229,  it  was  decided  that  the  sureties  were  not/ 
bound  for  moneys  received  by  a  marshal  before  the  date  of  the  bond/  /• 

Upon  the  whole  the  judgment  of  the  district  court  is  affirmed. 

Accord:  Bartlett  v.  Wheeler,  195  111.  445,  63  N.  E.  169;  United  States  v. 
Boyd,  15  Pet.  (U.  S.)  187,  10  L.  ed.  706;  Township  of  Paw  Paw  v.  Eggleston, 
25  Mich.  36;  Bissell  v.  Saxton,  77  N.  Y.  191;  Manhattan  Rolling  Mill  v.  Del- 
Ion,  113  N.  Y.  S.  571;  Pritchett,  Baugh  &  Co.  v.  Wilson,  39  Pa.  St.  421;  Na- 
tional Bank  of  Commerce  v.  Rockefeller,  174  Fed.  22;  Morrell  v.  Cowan,  L. 
R.  7  Ch.  Div.  151 ;  Townsend  v.  Everett,  4  Ala.  607. 

Where  it  appears  by  the  guaranty  that  it  was  intended  to  embrace  past  as 
well  as  future  transactions  such  an  effect  will  be  given  to  it,  notwithstanding 
the  fact  that  the  surety  was  ignorant  of  the  existence  of  a  debt  at  the  time  of 
the  execution  of  the  guaran'^y.   People  v.  Lee,  104  N.  Y.  449,  10  N.  E.  884. 

Bonds  given  in  the  course  of  the  administration  of  estates  are  subject  to  a 
different  rule  than  that  of  Myers  v.  United  States.  The  law  requires  the  ad- 
ministrator  to  faithfully  administer  the  estate  which  shall  at  any  time  come 
into  his  hands  as  administrator  and  his  bond  is  given  to  secure  the  perform- 
ance of  this  duty.  It  is  generally  held  then  that  the  bond  covers  all  the  assets, 
whether  they  come  into  the  hands  of  the  administrator  before  or  after  the 
execution  of  the  bond,  and  the  sureties  will  be  liable  for  any  conversion  of 
such  assets  before  as  well  as  after  the  bond  has  been  executed.    Scofield  v. 


r 


i 


DURATION    OF    LIABILITY  115 

Churchill,  72  N.  Y.  565;  Choate  v.  Arrington,  116  Mass.  552;  Brown  v.  State, 
23  Kans.  235;  Pinkstaff  v.  People,  59  111.  148;  Foster  v.  Wise.  46  Ohio  St. 
20,  16  N.  E.  687. 


IDA  COUNTY  SAVINGS  BANK,  APPELLEE,  v.  C.  J.  SEID- 
ENSTICKER AND  A.  F.  KNEPPER,  H.  A.  KNEPPER 
AND  MARGARET  KNEPPER*;  AS  EXECUTORS 
OF  THE  WILL  OF  F.  C.  KNEPPER, 
DECEASED,  APPELLANTS 

128  Iowa  54,  102  N.  W.  821,  111  Am.  St.  189  (1905). 


!hJ^ 


Action  at  law  upon  aJxjncLgiven  by  the  defendant  Seidensticker 
for  the  faithful  performance  of  his  duties  as  cashier  of  the  plaintiff 
bank\  Judgment  tor  plaintiff  upon  a  directed  verdict,  and  the  de- 
fendant surety  appeals.  Since  the  appeal  was  taken,  the  surety  F.  C. 
Knepper  has  deceased,  and  his  representatives  have  been  substituted 
as  appellants.   Reversed. 

Weaver,  J.:  In  the  year  1893  the  First  National  Bank  of  Ida 
Grove,  Iowa,  ceased  to  do  business,  and  transferred  its  assets  to  one 
J.  T.  Jjailam."  Soon  thereafter  Hallam,  who  had  been  conducting  a 
private  bank,  united  with  others  to  organize  the  plaintiff  bank,  him- 
self becoming  the  owner  of  something  more  than  two-thirds  of  the 
capital  stock.  The_defendant  C.  T.  Seidensticker,  who  had  been  em- 
ployed in  the  national  bank,  and  subsequently  by  Hallam  in  his  pri- 
vate bank,  became  the  plaintiff's  first  cashier,  and  as  such  gave  the 
bond  now  in  suit,  with  the  defendant  F.  C.  Knepper  as  his  surety. 
The  condition  of  the  bond  is  in  the  following  words :  "The  condi-  r 
tion  of  this  bond  is  such  that,  Whereas,  the  said  Chas.  J.  Seiden- 
sticker has  been  elected  cashier  of  the  Ida  County  Savings  Bank, 
within  Ida  Grove.  Now,  if  he  shall  well  and  truly  perform  the 
duties  of  the  office  of  cashier,  according  to  the  by-laws  of  said 
bank,  and  the  law  of  the  state  of  Iowa  governing  savings  banks,  and 
exercise  all  reasonable  care  and  diligence,  and  the  preservation  and 
lawful  disposal  of  all  moneys,  books,  papers  and  securities  belong- 
ing to  the  bank,  then  the  bond  to  be  void,  otherwise  of  force  and 
effect."  At  the  beginning  of  each  bank  year  the  board  of  directors 
re-elected  the  cashier,  and  he  continued  in  the  position  until  March, 
1897,  when  he  absconded.  During  all  the  period  of  Seidensticker's 
service  in  this  capacity  Hallam,  who  has  since  died,  was  the  presi- 
dent and  the  active  superintendent  or  managing  officer  of  the  bank. 
On  November  20,  1897,  the  plaintiff  brought  an  action  upon  said 
bond,  alleging  that,  in  violation  of  his  duties  as  cashier,  Seidensticker 
had  taken,  appropriated  and  converted  to  his  own  use  moneys  of 
the  bank  to  the  aggregate  amount  of  $7,959.41,  for  which  sum 
judgment  was  demanded  against  him  and  his  surety.    The  surety 


' 


..-LXUJ 


2jh 


116  THE    CONTRACT 

denies  liability  on  various  grounds,  to  which  reference  will  be  made 
in  the  progress  of  this  opinion.  A  reversal  of  the  judgment  entered 
below  upon  a  directed  verdict  is  claimed  upon  numerous  alleged 
errors. 

1.  The  first  question  to  be  considered  is  whether  the  bond  sued 
upon  created  a  continuing  obligation  upon  the  surety  so  long  as  p/ 
Seidensticker  might  be  retained  as  cashier  of  the  bank,  or  is  to  be 
limited  in  time  to  the  first  year  of  said  cashier's  service.  To  prop- 
' '  erly  answer  this  inquiry,  reference  to  the  statute  governing  savings 
banks,  and  to  the  facts  and  circumstances  attending  the  giving  of 
the  bond,  becomes  necessary. 

The  statute  invests  savings  banks  with  the  power  to  appoint  such 
officers,  agents  and  employes  as  the  business  transacted  by  them  may 
require.  Code,  §  1844.  It  also  provides  for  the  annual  election  of  a 
board  of  directors  (§  1846)  and  makes  it  the  duty  of  such  board  at 
•their  first  meeting,  and  as  often  thereafter  as  the  by-laws  require, 
to  elect  from  their  own  number  a  president  and  vice-president  for 
the  ensuing  year,  and  appoint  a  treasurer  or  cashier  and  such  other 
officers  and  employes  as  may  be  required,  who  shall  hold  their  office 
during  the  pleasure  of  the  board,  and  give  such  security  for  the  per- 
formance of  their  duties  as  may  be  required  of  them  by  the  by-laws 
(§  1845).  The  by-laws  of  the  plaintiff  bank,  as  offered  in  evidence, 
repeat  in  substance  the  statutory  provision  above  cited,  and  provide 
in  general  terms  that  the  president,  cashier  and  employes  of  the 
bank  shall  give  bonds  in  such  sums,  with  sureties,  as  the  board  of 
directors  shall  approve.  The  board  is  also  given  power  by  a  ma- 
jority vote  to  remove  at  any  time  any  or  all  of  the  officers  or  em- 
ployes and  appoint  others  in  their  stead.  In  actual  practice  the  board 
adopted  the  plan  of  electing  or  appointing  the  cashier  annually  at 
the  time  of  the  regular  annual  election  of  president  and  vice-presi- 
dent. The  records  of  the  corporation  show  that  the  first  regular 
meeting  of  the  board  of  directors  was  held  on  May  30,  1893,  and 
that  Charles  J.  Seidensticker  was  "appointed  cashier  until  the  next 
annual  election."  At  the  same  meeting  it  was  voted  that  the  presi- 
dent be  required  to  give  bond  in  the  sum  of  $50,000,  and  the  cashier 
in  the  sum  of  $10,000,  to  be  approved  by  the  board.  The  cashier's 
salary  was  at  the  same  time  fixed  at  $1,000  per  year  until  further 
ordered.  The  second  annual  meeting  occurred  on  May  31,  1894. 
The  record  of  this  meeting  recites  that  a  motion  that  Charles  J. 
Seidensticker  "be  elected  cashier  for  the  next  year"  was  carried.  At 
the  third  annual  meeting,  held  June  4,  1895,  it  is  recorded  that  a 
motion  that  "Charles  J.  Seidensticker  be  appointed  cashier  for_jthe 
ensuing  year"  was  carried,  and  that  his  salary  was  fixed  at  $840  per 
year.  No  record  seems  to  have  been  preserved  of  the  annual  meeting 
of  the  year  1896.  Seidensticker  testifies  that  such  a  meeting  was 
held  and  he  was  again  reappointed  for  the  ensuing  year,  and  this  is 
not  disputed.    These  four  successive  appointments  cover  the  entire 


% 


jabCb,   uui,   vviicu  eiusci^   cxctiiinicu,   mc   wain  ui 

rather  than  real. 

lat/g.  surety;,  especially  one  who  assumes  thatjy 

atter  of  accommodation  to  one  or  both  of  the  / 


0    1 

DURATION    OF    LIABILITY  117 

period  of  the  cashier's  service.  TheJiond  in  suit  was  executed  after 
the  first  election,  and  was  approved  and  accepted  by  the  board  of 
directors  about  June  27,  1893.  It  was  never  renewed,  nor  was  any 
other  bond  or  security  for  the  performance  of  his  duties  ever  re- 
quired of  the  cashier  while  he  remained  in  the  bank's  service.  It  is 
the  contention  of  the  surety  that  the  bond  is  to  be  construed  with 
. reference  to  the  term  of  the  appointment  or  election  of  Seiden- 
sticker  to  the  office  of  cashier.  In  other  words,  the  proposition  is 
that  Seidensticker  having  been  appointed  to  serve  in  that  capacity 
(for  the  period  of  one  year,  subject,  of  course,  to  the  reserved  right 
or  power  of  the  board  of  directors  to  remove  him  at  an  earlier  date, 
the  bond  given  to  secure  his  faithful  discharge  of  the  duties  of  his 
office  will  not  operate  to  bind  the  sureties  for  defalcations  occurring 
after  the  expiration  of  such  term  and  under  another  and  different 
appointment.  The  question  is  one  upon  which  there  is  some  appar- 
ent confusion  in  the  cases,  but,  when  closely  examined,  the  want  of 
harmony  is  apparent  ratjie.r  than  real. 

It  is  elementary  that 
relation  as  a  mere  matter  ot  accommodation  to  one  or  ootn  01  tne  / 
principal  parties,  is  entitled  to  rely  upon  the  strict  terms  of  his  con-  ^  ■ 
tract",  and  his  liability  will  not  be  extended  or  enlarged  by  implica- 
tion. Miller  "vTStewart,  9  Wheat.  680.  It  is  equally  well  settled 
ftliat,  in_tIi£,_Ja.hsence .  of  stipulations  making~the  contrary  intentionl 
clearly  and  unequivocally  apparent,  the  obligation  of  a  surety  upon' 
an  official  bond  does  not  extend. beyond  the  term  or  period  of  serv4 
ice  to  which  such  officer  had  been  appointed  or  elected  when  the 
bond  was  given.  Wapello  Co.  \.  Bigham,  10  Iowa  40;  Fresno  Co.  v. 
•Allen,  67  Cal.  505 ;  South  Carolina  Society  v.  Johnson,  1  Mc- 
Cord  (S.  Car.)  41,  10  Am.  Dec.  644;"  Chelmsford  Co.  v. 
Demarest,  7  Gray  1;  Moss  v.  State,  10  Mo.  338;  Bigelow  v. 
Bridge,  8  Mass.  275.  But  there  is  a  class  of  cases  in  which 
the  application  of  the  last-mentioned  rule  has  given  rise  to 
differences  of  opinion.  They  relate,  generally  speaking,  to  officers 
for  whom  the  law  which  authorizes  their  appointment  has  fixed  no  . 
definite  term  of  service,  and  are  removable  at  any  time  at  the  pleas- 
.ure  of  the  appointing  power,  but  are  nevertheless  appointed  and  re- 
appointed to  successive  definite  terms,  as  was  done  in  the  case  at 
bar.  A  line  of  decisions  is  to  be  found  which  appear  to  hold  with 
more  or  less  strictness  that  a  bond  given  by  such  officer  upon  his 
first  appointment  is  a  continuing  obligation  upon  the  surety,  unless 
the  contrary  intention  is  clearly  manifest  in  the  terms  of  the  instru- 
ment. The  case  most  often  cited  in  support  of  this  holding  is  Am- 
herst Bank  v.  Root,  2  Mete.  (Mass.)  522 ;  which  was  an  action  upon 
a  cashier's  bond.  The  statute  of  Massachusetts  at  that  time  au- 
thorized the  board  of  bank  directors  to  appoint  a  cashier  and  other 
officers,  who  should  "retain  their  places  until  removed  therefrom 
or  others  are  appointed  in  their  stead."    The  defendant  Root  was 


fa  L 


1  18  THE    CONTRACT  ' 

appointed  cashier  from  year  to  year  for  several  years,  but  gave  no 
bond,  save  the  one  made  to  the  bank  upon  his  original  appointment. 
The  bond  recited  generally  that  Root  had  been  appointed  cashier, 
and  was  conditioned  upon  his  faithful  performance  of  the  duties  of 
the  position.    The  sureties  were  directors  of  the  bank.    It  was  held 
by  a  divided  court  that  an  action  would  lie  upon  the  bond  for  the 
cashier's  default,  which  occurred  in  the  later  years  of  service.    The 
majority  opinion  concedes  the  general   rule   that  the  bond  of   an 
officer  appointed  for  a  fixed  or  limited  term  imposes  no  obligation 
on  the  surety  for  the  conduct  of  his  principal  under  a  reappointment^ 
but  gives  controlling  force  to  the  statute  providing  that  a  cashier, 
"shall  retain  his   office  until   removed  therefrom,"   and   shall  give;' 
bond  "conditioned  for  the  faithful  performance  of  the  duties  of  his 
office."    "This  provision,"  the  opinion  says,  "regulates  the  office  oi 
cashier,  and  fixes  the  term  by  which  it  is  held,"  and  upon  this  theorj 
of  the  effect  of  the  enactment  it  was  decided  that  the  bond  must  be 
held  to  have  been  given  to  cover  the  entire  time  of  the  cashier's! 
service  until  he  should  be  "removed"  or  another  be  "appointed  in 
his  place." 

Even  if  we  accept  this  construction  as  correct,  we  think  our  stat- 
ute, which  provides  that  the  cashier  shall  hold  his  office  "at  the 
pleasure  of  the  board,"  is  not  the  equivalent  of  the  Massachusetts 
act.  A  statute  which  unequivocally  gives  the  cashier  the  right  to  re- 
tain his  office  until  removed  may,  without  violence  to  the  meaning 
of  these  words,  be  held  to  imply  an  absence  of  authority  in  the  board 
of  directors  to  require  an  annual  appointment  or  reappointment  of 
a  cashier  whose  services  are  found  to  be  satisfactory,  while  a  pro- 
vision that  he  shall  hold  his  office  at  "the  pleasure  of  the  board" 
does  not  have  that  obvious  effect,  jit  is  a  fair  construction  of  this 
.'  provision  to  say  that,  while  retainingttrer  right  to  remove  him~aF~ahy 
time,  the  board  may  properly  pursue  the  plan  of  appointing  or  em- 
ploying a  cashier  for  a  year  at  a  time,  and  make  the  annual  reap- 
pointment a  condition  precedent  to  his  right  to  continue  in  such 
position. 

That  the  majority  opinion  in  Amherst  Bank  v.  Root  is  made  to 
turn  upon  the  construction  of  the  local  statute  has  been  distinctly 
held  by  the  Massachusetts  court  in  Richardson  School  Fund  v.  Dean, 
130  Mass.  242.  In  that  case  the  charter  of  a  corporation  provided  that 
its  trustees  should  be  chosen  for  a  period  of  three  years,  and  that 
other  officers  should  be  appointed  as  the  by-laws  might  provide.  No 
by-laws  were  adopted,  or,  at  least,  none  appear  in  the  record ;  but  it 
was  shown  that  "by  the  uniform  practice"  of  the  corporation  its 
treasurer  had  been  chosen  at  regular  triennial  elections  "for  the 
ensuing  term  of  three  years."  Under  these  circumstances  it  was  held 
that  the  bond  given  by  the  treasurer  under  his  first  appointment, 
though  not  containing  any  express  time  limit  to  its  operation,  was 
no':  a.  continuing  obligation,  and  did  not  bind  the  surety  for  defal- 


DURATION    OF    LIABILITY 


119 


cations  occurring  after  the  expiration  of  the  first  term  of  three  years. 
The  same  construction  is  placed  upon  Amherst  Bank  v.  Root  in 
Welch  v.  Seymour,  28  Conn.  294;  Chelmsford  Co.  v.  Demarest,  7 
Gray  1,  and  Bank  v.  Briggs,  69  Vt.  12.   The  case  of  Exeter  Bank  v. 
Rogers,  7  N.  H.  21,  is  somewhat  less  in  point  than  the  Root  case. 
While, 'under  the  peculiar  circumstances  there  disclosed  the  bond 
was  held  to  continue  through  a  long  series  of  years,  the  opinion 
appears,  impliedly  at  least,  to  except  from  the  rule  there  ^approved 
cases  of  the  character  of  the  one  before  us.    It  says  that  "when  an 
office  is  held  at  the  will  of  those  who  make  the  appointment,  and  is 
not  limited  to  any  certain  term,  then  the  bond  is  presumed  to  be  in- 
tended, if  nothing  appear  to  the  contrary,  to  cover  all  the  time  the 
person  appointed  shall  continue  in  office  under  the  appointment." 
[As  the  cashier  in  the  present  case,  though  holding  at  the  will  of  the 
k       j  directors,  nevertheless  held  by  an  "appointment  limited  to  a  certain 
Aterm,"  it  would  seem  to  follow  that  his  bond  given  upon  such  ap- 
pointment is  not  within  the  rule  of  the  New  Hampshire  precedent. 
Of  the  other  case  cited  by  the  appellee  in  this  connection  we  will 
speak  only  of  Westervelt  v.  Mohrenstecher,  76  Fed.  118,  which  was 
an  action  upon  the  bond  of  the  cashier  of  a  national  bank.    It  was 
there  decided  that  the  annual  re-election  of  the  cashier  did  not  oper- 
ate to  terminate  the  obligation  of  his  bond  given  at  the  time  of  his 
first  appointment.    This  holding  was  based  in  part  upon  the  act  of 
congress  which  makes  the  duration  of  service  of  bank  officers  in- 
definite and  subject  to  be  terminated  at  the  will  of  the  directors,  and 
in  part  upon  the  peculiar  language  of  the  bond,  which  was  expressly 
conditioned   for  the   faithful  performance  of   duty  by  the  cashier 
"for  and  during  all  time  he  shall  hold  the  office  of  cashier  of  the 
said  bank."    This,  it  will  be  noted,  is  a  much  broader  and  more 
sweeping  obligation  than  is  expressed  in  the  bond  in  suit.    It  may 
also  be  said,  with  reference  to  the  last-cited  case,  that  it  seems,  in 
argument,  to  carry  the  idea  of  the  continued  obligation  of  the  surety 
upon  such  bonds  beyond  the  limit  expressed  in  any  of  the  other 
precedents  called  to  our  attention.   In  an  action  upon  a  similar  bond 
the  Vermont  court  carefully  reviews  the  authorities  and  reaches  the 
opposite  conclusion.    Speaking  of  the  annual  election  of  an  officer 
who  is  subject  to  removal  or  displacement  at  the  will  of  the  appoint- 
ing power,  the  opinion  well  says : 

"The  provision  that  an  officer  may  be  dismissed  at  pleasure  can  ap- 
ply as  well  to  an  appointment  limited  to  a  given  time  as  to  an  appoint- 
ment to  an  indefinite  period.  It  does  not  impliedly  prohibit  the  fixing 
of  a  time  beyond  which  the  appointment  shall  not  extend.  Its  effect  is 
simply  that  the  appointment,  however  made,  shall  be  terminated  at 
\  the  pleasure  of  the  appointing  power.  An  appointment  may  be  made 
.  which,  if  not  previously  terminated  by  the  action  of  the  board  of 
directors,  will  continue  for  the  period  designated  and  expire  by  its 
own  limitation.    There  is  nothing  in  the  statute  which  requires  us 


120  THE    CONTRACT 

to  hold  that  this  surety  contracted  with  reference  to  an  unlimited 
period  when  the  appointment  was  in  terms  for  a  specified  time.  The] 
cashier's  re-election  was  something  more  than  a  meaningless  ex- 
pression of  the  pleasure  of  the  directors ;  it  was  the  filling  of  a 
vacancy  occasioned  by  the  limitation  of  their  previous  appointment." 
It  is  difficult  to  avoid  the  force  and  justice  of  this  reasoning.  It 
finds  support  also  in  the  following  cases:  O'Brien  v.  Murphy,  175 
Mass.  255 ;  Bigelow  v.  Bridge,  8  Mass.  275 ;  Union  Co.  Vas.  Inst. 
v.  Ostrander,  163  N.  Y.  430;  Moss  v.  State,  47  Am.  Dec.  116;  Bank 
v.  Hunt,  72  Mo.  597;  South  Carolina  Society  v.  Johnson,  1  McCord 
(S.  Car.)  41,  10  Am.  Dec.  644;  Mutual  Loan  &  Building  Assn.  v. 
Price,  16  Fla.  204;  Treasurer  v.  Mann,  34  Vt.  371 ;  Citizens'  Loan 
Assn.  v.  Nugent,  40  N.  J.  Law  215;  Wardens  v.  Bostwick,  5  B.  & 
P.  175 ;  Kilson  v.  Julian,  4  E.  &  B.  853 ;  Liverpool  W.  Co.  v.  Atkin- 
son, 6  East.  507 ;  Arlington  v.  Merrick,  2  Saund.  403 ;  Peppin  v. 
Cooper,  2  B.  &  A.  431 ;  Theobold  on  Principal  and  Surety,  §  82 ;  M. 
1  &  M.  Co.  v.  O.  F.  Hall  Assn.,  48  Pa.  446;  Curling  v.  Calkeen,  3 
M.  &  S.  502. 

Few,  if  any,  of  these  cases  are  quite  parallel  in  their  facts  with  the 
one  we  are  considering,  but  they  amply  sustain  the  rule,  to  which 
we  adhere,  that/a  cashier's  bond  which  does  not  expressly  limit  the 
period  of  its  operation  must  be  read  in  connection  with  the  terms_of_ 
the  appointment  under  which  such  cashier  holds  his  office,  and, 
if  such  appointment  be  for  a  definite  period,  the  bond  ceases— to- 
be  effective  upon  the  expiration  of  the  term  so  designated.  The 
reasoning  upon  which  this  rule  is  based  seems  to  be  sound,  and  the 
rule  itself  places  an  undue  burden  upon  no  one.  He  who  is  re- 
quested to  become  surety  upon  the  bond  of  a  neighbor  or  friend  who 

|  has  been  made  cashier  of  a  bank  under  an  appointment  expiring  in 

'  one  year  or  other  short  period  may  willingly  do  so  where  he  would 
^    very  reasonably  refuse  to  assume  an  obligation  which  might  continue^ 

•  for  a  lifetime.   Before  assuming  the  obligation,  the  surety  may  rea- 
sonably inquire  as  to  the  time  and  terms  of  his  principal's  appoint- 
ment, and  rely  upon  the  actions  of  the  corporation  in  that  respect. 
-^  I  To  hold  otherwise  is  to  set  a  trap  for  the  unwary.   Says  Chancellor 
Kent : 

It  is  a  well-settled  rule,  both  at  law  and  in  equity,  that  a  surety 

*?is  not  bound  beyond  the  present  terms  of  his  contract.  This  rule  is 
founded  upon  the  most  cogent  and  salutary  principles  of  public  pol- 
icy and  justice.  In  the  complicated  transactions  of  civil  life  the  aid 
of  one  friend  to  another  in  the  character  of  surety  or  bail  becomes 
requisite  at  every  step.  Without  these  constant  acts  of  mutual  kind- 
ness and  assistance  the  course  of  business  and  commerce  would  be 
prodigiously  impeded  and  disturbed.  It  becomes,  then,'  excessively 
important  to  have  the  rule  established  that  a  surety  is  never  to  be 
implicated  beyond  his  engagement. 

Believing,  as  we  do,  that  the  engagement  of  the 'surety  in  this] 

■— =         -J 


DURATION    OF    LIABILITY  121 

,case  must  be  measured  by  tbe  terms  of  the  appointment  under  which 
the^casmer  was  serving  at  the  date  of  the  bond,  we  are  constrained 
to  hold  that  the  appellants  can  not  be  made  liable  for  defalcations 
of  Seidensticker  occurring  after  his  first  re-election.     *     *     * 

For  the  reasons  stated  the  judgment  of  the  district  court  is  re- 
versed. 

Note:  Sureties  on  the  bond  of  a  treasurer  who  by  law  is  to  be  chosen  an- 
nually and  hold  his  office  until  another  is  chosen  and  qualified  in  his  stead  are 
bound  only  for  the  year  he  is  chosen  and  a  reasonable  time  thereafter  within 
which  time  his  successor  should  have  been  elected  and  qualified.  Chelmsford 
Co.  v.  Demarest,  7  Gray  (Mass.)  1;  Welch  v.  Seymour,  28  Conn.  387;  Mu- 
tual Loan  and  Bldg.  Assn.  v.  Price,  16  Fla.  204,  26  Am.  Rep.  703. 

Contra :   Long  v.  Seay,  72  Mo.  648. 

For  other  cases  on  the  question  of  duration  of  liability  on  bonds  of  officers, 
see  Oswald  v.  Mayor  of  Berwick,  5  H.  L.  Cases  856;  Coombs  v.  Harford,  99 
Maine  426,  59  Atl.  529;  Middlesex  Mfg.  Co.  v.  Lawrence,  83  Mass.  339. 


l^ 


U^ 


v*^ 


AMERICAN  BONDING  AND  TRUST  CO.  v.  MILWAUKEE' 
HARVESTER  CO. 

91  Md.  733,  48  Atl  72  (1900). 

Boyd,  J.,  delivered  the  opinion  of  the  court. 

The  appellee  sued  the  appellant  on  a  surety  bond  for  losses  sus- 
tained by  the  former  through  Upton  S.  Brumbaugh  in  connection 
with  the  duties  of  his ^position  as  its  general  agent.  There  are  two 
counts  in  the  declaration,  but  they  are  similar,  excepting  as  to  the 
dates,  the  appellant  having  renewed  for  a  year  a  bond  which  it  had 
given  for  the  previous  year  to  "make  good  and  reimburse  to"  the 
appellee  to  the  extent  of  two  thousand  dollars,  such  pecuniary  loss 
as  it  may  sustain  "by  reason  of  any  fraudulent  or  dishonest  acts  of 
the  employed  in  connection  with  the  duties  of  said  position,  amount- 
ing to  embezzlement  or  larceny." 

******* 
The  next  point  to  be  considered  is  the  alleged  error  in  not  sustain- 
ing the  demurrer  to  the  plaintiff's  replication  of  the  defendant's 
third  plea.  That  plea  alleges  that  all  the  moneys  collected  by  Brum- 
baugh, during  the  term  of  the  bond  and  the  renewal  thereof  were 
paid  over  to  the  plaintiff"  and  hence  there  was  no  pecuniary  loss  to 
it  during  the  term  of  the  bond  sued  upon.  It  sets  out  a  list  of  ac- 
counts showing  the  names  of  parties  from  whom  they  were  col- 
lected, the  dates  and  amounts  of  collections,  being  in  the  aggregate 
$3,814.85,  and  alleges  that  each  and  every  item  of  them  was  paid 
over.  The  plaintiff  by  the  replication  "denies  that  the  sums  of  money 
included  in  the  claim  of  $2,814.85,  as  itemized  in  said  plea,  were 
paid  over  to  the  Milwaukee  Harvester  Co.,  on  the  accounts  for 


122  THE    CONTRACT 


£ 


which  it  is  alleged  in  said  plea  they  were  collected,  and  hence  denies 
the  statement  in  said  plea  that  there  was  no  pecuniary  loss  to  the 
plaintiff  during  the  term  of  said  bond,  and  plaintiff  further  alleges 
that  there  was  an  actual  deficit  of  $2,814.85  in  the  accounts  of  said 
Brumbaugh  during  the  terms  of  said  bond."  *  *  *  The  discussion 
of  this  point  must  therefore  be  narrowed  to  the  inquiry  whether 
the  fact  that  the  money  collected  by  the  agent  was  paid  to  the  plain-/ 
tiff,  although  on  accounts  other  than  those  so  collected  relieved  the 
agent  of  embezzlement  and  the  defendant  of  liability,  and,  giving  the 
plea  the  greatest  possible  latitude,  we  are  not  called  upon  to  discuss 
the  many  technical  defenses  that  may  be  interposed  on  the  charge 
of  embezzlement.     *     *     * 

Independent  of  authority  we  can  not  understand  how  the  position 
of  the  appellant  can  be  successfully  maintained.  If  Brumbaugh  had 
fraudulently  converted  this  money  to  his  own  use  by  paying  it  to 
some  creditor  other  than  the  plaintiff,  there  could  be  no  question  as 
to  the  responsibility  of  the  bonding  company,  and  upon  what  prin- 
ciple can  it  be  relieved  merely  because  he  so  used  it  in  payment  of 
other  debts  he  owed  the  plaintiff?  If  the  bonding  company  had 
given  the  appellee  one  bond  to  be  in  effect  from  December  1,  1895, 
to  December  1,  1896,  and  another  from  the  latter  date  to  Decem- 
ber 1,  1897,  and  Brumbaugh  had  collected  from  A  and  B  $1,000 
during  the  first  year,  which  he  appropriated  to  his  own  use,  and 
during  the  second  year  collected  from  C  and  D  a  thousand  dollars 
which  he  paid  to  the  Harvester  Company  to  be  credited  on  the  ac- 
counts of  the  first  year,  and  that  company  did  so  credit  A  and  B 
without  any  knowledge  that  the  sums  were  collected  from  C  and  D 
and  there  was  still  a  deficit  of  a  thousand  dollars  at  the  end  of  the 
second  year,  a  suit  on  the  first  bond  would  have  been  met  by  the 
defense  that  Brumbaugh's  obligations  were  canceled  by  the  pay- 
ment so  made,  and  the  books  of  the  appellee  would  have  tended  to 
sustain  that  defense.  Then  if  suit  was  brought  on  the  second  bond, 
according  to  the  appellant's  theory  it  could  defeat  that  action  be- 
cause the  money  received  by  the  agent  during  that  year  had  in  fact 
been  paid  over  to  the  plaintiff.  Bonds  of  this  character  would  be 
wTorse  than  useless  if  such  results  could  follow,  as  the  party  under- 
taking to  be  indemnified  by  them  might  be  misled  and  subjected  to 
loss  by  relying  on  what  he  believed  to  be  security,  but  which  would 
prove  to  be  a  snare  and  delusion.  Or  take  another  instance,  suppose 
the  agent  collected  one  hundred  dollars  from  each  of  four  parties 
and  paid  to  his  principal  two  hundred  dollars  to  be  credited  on  the 
accounts  of  A  and  B,  but  kept  the  balance,  and  the  bonding  company 
was  sued  for  the  amounts  he  received  from  C  and  D,  could  it  be 
possible  that  it  would  be  a  defense  to  say  that  the  money  paid  on 
account  of  A  and  B  was  actually  received  from  C  and  D,  and  that 
having  been  paid  to  the  principal  he  could  not  recover,  or  if  the 
agent  was  indicted  for  embezzlement  of  the  money  received  from 


to         I 


DURATION    OF    LIABILITY  123 

C  and  D  would  it  avail  him  to  prove  that  that  particular  money  was 
paid  over  to  the  principal,  although  it  was  paid  on  account  of  what 
the  agent  had  received  from  A  and  B?  If  that  be  true,  then  if  a 
bank  officer  appropriates  one  hundred  dollars  to  himself  one  week 
and  replaces  that  with  another  hundred  dollars,  so  appropriated, 
the  next  week,  and  continues  that  operation  from  time  to  time  until 
he  finally  owes  the  last  hundred  dollars,  which  he  does  not  pay,  he 
could  not  be  convicted  of  embezzlement,  or  a  bonding  company  could 
not  be  held  liable  on  a  bond  of  this  character  for  the  last  hundred 
dollars,  because  the  agent  had  paid  that  money  over  to  his  principal, 
although  he  had  appropriated  the  last  sum  to  pay  what  he  previ- 
ously owed.  If  Brumbaugh  had  been  the  agent  of  the  Harvester 
Company  for  Maryland  and  Virginia,  and  the  appellant  had  been  his 
surety  for  collections  in  Maryland  alone,  and  another  company  for 
those  in  Virginia,  and  he  had  collected  $2,800  in  Maryland  which 
he  converted  to  his  own  use,  and  afterward  collected  $2,800  in  Vir- 
ginia, which  he  paid  to  his  principal  to  be  credited  on  account  of  the 
Maryland  collections,  would  the  appellant  admit  that  it  was  still 
liable  because  the  money  paid  was  in  reality  collected  from  the  Vir- 
ginia debtors  ?  Or  could  the  other  company  be  excused  because  that 
money  (even  if  he  paid  the  identical  notes  received  by  him)  was 
actually  received  by  the  principal,  although  without  knowledge  of  the 
source  it  came  from,  and  was  credited  by  the  direction  of  the  agent 
to  the  Maryland  claims  ?  Other  illustrations  might  be  given  to  show 
not  only  how  useless  securities  of  this  character  would  be,  but  the 
results  that  might  follow,  if  such  a  doctrine  as  is  contended  for  be 
adopted.  It  might  as  well  be  said  that  if  A  owes  B  five  dollars  and 
he  surreptitiously  takes  that  amount  out  of  the  safe  of  B  and  then 
pays  B  the  debt  with  it,  that  it  would  not  be  larceny,  for  he  could 
with  equal  propriety  say  he  had  not  appropriated  it  to  his  own  use, 
but  had  taken  it  simply  to  pay  B,  although  he  was  thereby  cancelling 
a  debt  he  owed  him.  As  the  point  is  now  presented  to  us,  jthe  agent  ) 
used  his  principal's  money  received  during  the  term  and  limttef "the ( 
conditions  of  the  bond  and  applied  it  to  his  own  use — that  is,  to  the  / 
payment  of  debts  he  owed  the  principal,  on  account  of  collections 
previously  made  by  him  for  which  he  was  liable,  and  it  was  there-\ 
fore  as  much  a  conversion  of  the  principal's  money  as  if  he  had'- 
paid  it  to  some  third  party.  He  could  not  successfully  defend  him-  I 
self  from  the  charge  of  embezzlement  by  reason  of  such  payment 
nor  can  his  security  do  so  under  the  terms  of  this  bond.  There  is 
no  allegation  that  the  Harvester  Company  was  in  any  wise  respon- 
sible for,  or  knew  of,  the  use  of  money,  which  the  appellant  was 
liable  for  under  the  bond,  by  Brumbaugh  to  pay  other  debts  he 
owed  it.  If  it  had  been  accepted  with  such  knowledge,  another  ques- 
tion would  have  arisen. 

If,  then,  we  were  without  authorities  on  the  subject  we  would 
have  no  difficulty  in  reaching  the  conclusion  that  the  defense  in- 


124  THE    CONTRACT 

tended  to  be  relied  on  under  this  plea  is  not  well  taken,  but  those 
reflecting  on  the  question  are  not  wanting.  In  Frown felter  v.  State, 
use  County  Commissioners,  66  Md.  80,  the  suit  was  on  a  tax  col- 
lector's bond.  The  collector  had  applied  part  of  the  money  which 
he  had  collected,  for  the  year  for  which  the  bond  was  liable,  to  his 
defalcations  for  previous  years,  and  the  sureties  contended  that  that 
could  not  be  done  and  they  still  be  liable.  This  court  said,  on  page 
87 :  "If  the  commissioners  or  the  treasurer  knew  that  the  money  was 
applied  to  the  taxes  due  for  previous  years  had  been  collected  on 
the  levy  of  1881,  certainly  they  would  have  had  no  right  to  permit 
such  application.  But  in  the  absence  of  any  knowledge  of  the 
sources  from  which  it  was  obtained,  it  is  difficult  to  see  how  they 
could  have  prevented  Myers  from  applying  it  to  his  indebtedness 
for  any  year  which  he  might  name.  When  the  money  was  in  his 
possession  there  was  nothing  to  identify  it  or  to  distinguish  it  from 
other  funds  under  his  control,  or  rightfully  belonging  to  him.  The 
obligation  assumed  by  his  sureties  was  that  he  should  pay  the  money 
in  discharge  of  the  tax  levied,  within  the  time  required  by  law.  If 
he  paid  it  in  discharge  of  previous  taxes,  it  was  as  much  a  breach 
of  his  bond  as  if  he  had  retained  it  in  his  own  pocket.  We  think 
the  law  on  this  point  is  correctly  stated  in  Inhabitants  v.  Bell,  9 
Metcalf  499,  and  in  Gwynne  v.  Burnell,  7  Clark  and  Finley  572." 
In  the  case  last  cited  there  were  several  opinions  filed  to  the  same  ef- 
fect, but  Baron  Gurney  thus  tersely  stated  his  conclusion :  "The 
application  of  any  part  of  the  money  collected  under  the  assessments 
of  that  year,  to  cover  any  deficiency  in  any  former  year,  is  just  as 
much  a  breach  of  his  duty  and  a  forfeiture  of  his  bond  as  if  he  had 
paid  the  money  to  any  other  creditors  or  lost  it  at  the  gaming  table." 
To  the  same  effect  are  State  v.  Sooy,  39  N.  J.  L.  539;  Com.  v. 
Knettle,  182  Pa.  176;  County  of  Pine  v.  Willard,  39  Minn.  125; 
Crawn  v.  Seymour,  15  Wend.  19;  Hecox  v.  Citizens'  Ins.  Co.,  2 
Fed.  535 ;  State  v.  Smith,  26  Mo.  226.  Those  cases  in  no  wise 
conflict  with  the  general  principles  applicable  to  sureties,  such  as 
that  they  are  only  liable  for  defaults,  etc.,  during  the  time  the 
bonds  are  in  force,  but  (they  hold  that  default  is  made  by  the  ap- 
plication of  money  collected  under  the  terms  of  the  bond  to  the 
payment  of  other  debts,  even  if  such  debts  are  due  the  obligee 
of  the  bond,  provided,  of  course,  he  is  not  a  party  to  its  misap- 
propriations and  has  no  knowledge  of  it. 

That  the  agent  will  be  guilty  of  embezzlement  by  the  misappro- 
priation of  funds  under  these  circumstances,  if  the  evidence  shows 
sufficient  fraudulent  conduct  on  his  part  as  to  amount  to  that  crime, 
was  expressly  decided  in  Rex  v.  Hall,  Russ.  and  Ryan  463.  There 
a  clerk  who  had  received  eighteen  pounds  in  one-pound  notes  for 
his  employer  charged  himself  with  twelve  of  them  and  the  same  day 
received  other  money  and  paid  over  that  sum  and  the  other  six 
pounds  to  his  employer  on  account  of  another  debt  due  by  him  to 


SURETYSHIP  BY  OPERATION  OF  LAW  125 

the  master.  He  was  held  to  be  guilty  of  embezzlement.  See  also 
State  v.  Baumhager,  28  Minn.  226 ;  2  Bishop  New  Crim.  Law,  §  377 
(ed.  of  1892)  ;  Roscoe's  Criminal  Evidence  (456). 

So  if  we  give  this  replication  the  construction  placed  upon  it  by 
the  appellant,  it  was  an  answer  to  the  plea  and  the  demurrer  was 
properly  overruled.  No  other  questions  having  been  urged  before 
us,  the  judgment  will  be  affirmed. 

Judgment  affirmed,  appellant  to  pay  the  costs. 

Accord:  People  v.  Hammond,  109  Cal.  384,  42  Pac.  36;  Inhabitants  of 
Egremont  v.  Benjamin,  125  Mass.  15. 

Contra :    State  v.  Atherton,  40  Mo.  209.  m  . 

Where  a  treasurer  holds  his  office  for  several  consecutive  terms,  and  is 
found  to  be  a  defaulter  at  the  end  of  his  last  term,  it  will  be  presumed,  in  the 
absence  of  proof  to  the  contrarv,  that  the  entire  default  originated  and  oc- 
curred within  his  last  term.  Kelly  v.  State,  27  Ohio  St.  567 ;  County  of  Pine 
v.  Willard.  39  Minn.  125,  39  N.  \V.  71,  1  L.  R.  A.  118,  12  Am.  St.  622;  Hetten 
v.  Lane,  43  Tex.  279. 


SECTION  9.  SURETYSHIP  BY  OPERATION  OF  LAW 

LAURA  RAWSON  v.   NEWTON  W.  TAYLOR  AND  JACOB 

FINGER 

30  Ohio  St.  389,  27  Am.  Rep.  464  (1876). 

The  present  plaintiff  was  plaintiff  in  the  common  pleas,  where 
she  brought  an  action  against  Newton  W.  Taylor,  Edward  Gris-  ' 
wold,  and  Jacob  Finger,  late  partners,  under  the  firm  name  of  Tay- 
lor, Griswold  &  Co.,  on  a  promissory  note,  a  copy  of  which,  with 
indorsements,  is  as  follows : 
"$805.11.  Cleveland,  Ohio,  November  17,  1865. 

"One  year  after  date  we  promise  to  pay  to  the  order  of  Mrs. 
Laura  Rawson,  eight  hundred  and  five  and  eleven  one-hundredths 
dollars,  at  our  office.   Value  received.     Taylor,  Griswold  &  Co." 

(45  cts.  U.  S.  Rev.  Stamp.) 

Indorsed  as  follows : 

"Paid  interest  on  this  note  for  one  year  to  Nov.  17th,  '66,  $64.40. 
Nov.  15th,  '67. 

"Paid  interest  on  the  within  for  one  year  to  Nov.  17th,  '67,  $80.50. 
Nov.  15th,  '67. 

"Paid  on  the  within  note,  $10.    Nov.  24th,  1868." 

The  petition  seeks  to  recover  a  judgment  against  each  of  the  de- 
fendants, on  their  partnership  liability,  on  said  note. 

Taylor  and  Finger  answer  separately,  and  in  substance  admit 
that  they  were  partners  at  the  date  of  said  note  (November  17. 
1865);  but  that  soon  after    (November  24,   1865)    the  firm  was 


126  THE    CONTRACT 

dissolved  and  a  new  firm  was  formed,  of  which  they  were  not  mem- 
bers, called  E.  R.  Griswold  &  Co.,  consisting  of  said  Edward  Gris- 
wold,  and  C.  H.  Roberts  and  William  Ferguson. 

This  new  firm  took  the  stock  of  goods  on  hand,  and  assumed  to 
pay  the  debts  of  the  old  firm  of  Taylor,  Griswold  &  Co.,  and  save 
the  retiring  partners  harmless. 

1.  It  is  claimed  that  the  plaintiff  had  notice  of  this  arrangement, 
which  by  its  terms,  as  between  themselves,  constituted  Taylor  and 
Finger  sureties  of  their  former  partner,  and  as  such,  after  such 
notice,  entitled  to  all  the  rights  and  privileges  of  sureties,  as  against 
the  plaintiff. 

2.  Again :  It  was  claimed  in  the  answer,  as  a  corollary  from 
that  proposition,  that,  after  such  notice,  she  gave  time  to  the  new 
firm  by  receiving  interest  to  a  day  beyond  its  payment. 

Johnson,  J. :  The  note  sued  on  was  the  joint  liability  of  all  the 
partners  in  the  firm  of  Taylor,  Griswold  &  Co. 

Taylor  and  Finger,  as  well  as  Griswold,  were  principal  debtors. 

When  the  note  was  executed  and  delivered  to  Mr.  Rawson,  for  a 
valuable  consideration,  the  liability  thereon  of  each  partner  became 
fixed.  Their  relations  to  that  contract,  and  their  liabilities  thereon, 
could  by  no  act  between  themselves  be  changed. 

After  this  note  was  given,  two  of  the  partners,  Taylor  and  Finger, 
retired  from  the  firm,  and  a  new  one  was  formed,  including  Gris- 
wold, their  former  partner,  which  obligated  itself  to  the  retiring  j 
partners  to  pay  all  debts,  and  save  them  harmless. 

Of  this  arrangement,  it  is  claimed  that  Mrs.  Rawson  had  notice. 
The  evidence  tends  to  show  constructive  notice  to  her  of  the  forma- 
tion of  the  new  partnership  to  succeed  Taylor,  Griswold  &  Co., 
and  subsequent  dealings  by  her  with  the  new*  firm.  Whether  she 
ever  in  fact  knew  of  this  arrangement,  by  which  the  new  firm  was 
to  pay  the  debts  of  the  old,  does  not  appear,  but,  conceding  that  she 
did,  the  question  presented  by  the  charge  of  the  court  is,  as  to  the 
effect  of  such  knowledge  on  her  rights  on  the  note. 

The  charge  was :  "If  she  did  have  notice,  then  she  was,  after  that 
knowledge,  bound  to  treat  them  as  sureties,  and  they  were  entitled 
to  all  the  protection  that  sureties  would  be  entitled  to,  as  if  the 
names  of  Taylor  and  Finger  had  been  attached  as  sureties  when 
the  note  was  executed." 

It  is  not  claimed  that  Mrs.  Rawson  assented  to  this  new  arrange-  [ 
ment,  or  by  any  valid  contract,  express  or  implied,  agreed  to  modify 
or  change  the  relations  of  these  joint  obligors  to  her  upon  the  note, 
but  simply,  as  between  themselves,  by  the  new  arrangement,  Taylor 
and  Finger  became  sureties  of  their  copartner,  Griswold,  of  which 
fact  Mrs.  Rawson  had  notice.  It  is  admitted  that  so  long  as  she  was 
not  informed  of  this  arrangement  her  rights  and  duties  remained  as 
fixed  when  the  note  was  given;  but  it  is  claimed  that  when  such 


h6 


SURETYSHIP    BY    OPERATION    OF    LAW 


127 


notice  was  given,  then  Taylor  and  Finger  were  entitled  to  the  same 


rights  and  protection  as  if  they  had  been  originally  sureties. 

In  substance,  the  charge  of  the  court  lays  down  the  law  to  be,  that 
the  liability  of  principals  on  an  obligation  may  be  converted  into  a 
liability  of  suretyship  by  the  acts  of  the  obligors,  without  the  assent 
of  the  obligee,  by  giving  notice  of  such  new  arrangement. 

In  Thurston  &  Hays  v.  Ludwig,  6-Hh.io.i?t^lJ,  it  was  held  that  in 
order  to  change  or  vary  the  terms  of  a  written  contract,  there  must 
be  a  new  contract  to  that  effect  between  the  parties,  based  on  some 
new  consideration,  or  such  new  contract  must  have  been  so  far  exe-  : 
cuted  or  acted  upon  that  a  refusal  to  carry  it  out  would  operate  as 
a  fraud. 

Such  is  the  general  rule  governing  all  contracts.  In  its  applica- 
tion to  cases  like  the  one  at  bar,  Story  says :  "It  frequently  happens 
that  upon  the  retirement  of  one  partner,  the  remaining  partners  un- 
dertake to  pay  the  debts  and  to  secure  the  credits  of  the  firm.  This 
is  a  mere  matter  of  private  arrangement  and  agreement  between  the 
partners,  and  can  in  no  respect  be  admitted  to  vary  the  rights  of 
existing  creditors  of  the  firm."  .  Story  on  Partnership. 

If   the   creditor   assents   to   such   arrangement   after   it   becomes 
known  to  him,  "and  by  his  subsequent  act  or  conduct,  or  binding  con 
'tract,  he  agrees  to  consider  the  remaining  partners  as  his  exclusive 


C 


debtors,  he  may  lose  all  right  and  claim  against  the  retiring  partner." 
The  precise  question  at  bar  was  considered  at  great  length  in 
Maingay  v.  Lewis,  Irish  R.  Com.  Law  495  (1869). 

To  an  action  on  the  money  counts,  the  defendant  pleaded  that  the 
cause  of  action  accrued  against  him  and  one  W.  and  one  S.  as  part- 
ners ;  that  afterward  the  firm  was  dissolved  by  a  memorandum,  of 
which  plaintiff  had  due  notice,  by  which  W.  agreed  to  pay  all  debts 
of  the  firm  and  indemnify  his  copartners  from  all  claims,  by  which 
he  became  a  surety  only,  of  which  plaintiff  had  notice,  and  after 
such  notice  took  a  bill  of  exchange  at  three  months  from  W.  alone 


for  the  amount,  and  thereby  gave  time  to  W.,  whereby  defendant 
was  discharged  from  liability.  It  was  held  that  this  plea  was  bad, 
and  did  not  constitute  a  defense  either  at  law  or  in  equity,  White- 
side, C.  J.,  saying:  "It  is  clear  that  no  arrangement  among  joint 
debtors  could  prejudice  the  rights  of  their  creditors."  Again  :  "An- 
other averment  is  that  the  plaintiffs  'had  notice  of  this  arrange- 
ment.' Well,  I  do  not  see  how  the  men  giving  notice  to  the  plain- 
tiff of  an  arrangement  by  which  they  can  not  be  affected,  is  to  prej- 
udice their  rights." 

In  that  opinion  the  distinction  is  clearly  drawn  between  a  case 
where  the  relation  of  principal  and  surety  existed  inter  se  at  the  time 
the  obligation  was  entered  into,  of  which  the  creditor  had  knowledge, 
and  a  case  of  joint  principals  inter  se  at  the  date  of  the  obligation, 
and  a  subsequent  agreement  between  the  joint  debtors,  by  which, 


r 


128  THE    CONTRACT 

as  between  themselves,  one  becomes  a  surety  of  the  other,  of  which 
subsequent  arrangement  the  creditor  had  knowledge. 

It  is  of  the  first  importance  to  keep  in  mind  the  distinction,  as  it 
furnishes  the  key  to  harmonize  many  apparently  conflicting  de- 
cisions. In  the  former  class  of  cases,  the  relation  of  suretyship 
exists  at  the  very  inception  of  the  contract.  The  obligee  having 
knowledge  of  that  relation  before  he  accepts  the  contract,  takes  it 
subject  to  all  the  rights  and  equities  of  such  sureties  inter  se  not  in- 
consistent with  the  terms  of  the  contract. 

On  the  other  hand,  where  the  obligors  are  in  fact  joint  debtors, 
he  accepts  them  as  such^  and  no  subsequent  arrangement  between, 
the  joint  debtors  alone  can  change  that  relation.  Bedford  v.  Deakin, 
2  B.  &  Aid.  210;  Evans  v.  Drummond,  4  Esp.  89;  Pooley  v.  Harra- 
dine,  7  E.  &  B.  431 ;  Butler  et  al.  v.  Berkey,  13  Ohio  St.  523 ;  Par- 
sons on  Part.,  421-425,  ch.  13 ;  Manley  v.  Boycott,  75  E.  CTT1  45. 

We  may  concede  that  such  an  agreement  between  remaining  and 
retiring  partners,  with  notice  to  a  partnership  creditor,  would  im- 
pose upon  him  the  duty  of  acting  in  good  faith  and  with  reasonable 
diligence  in  the  management  of  securities  placed  in  his  hands  for 
the  payment  of  his  claim,  in  the  preservation  of  liens,  and  in  the 
application  of  payments  made. 

A  failure  by  the  creditor,  after  such  notice,  to  perform  these 
duties,  resulting  in  damages  to  the  retiring  partner,  might  well  be 
regarded  in  a  court  of  equity  as  cause  to  release  him. 

In  such  case  the  terms  of  the  contract  have  not  been  changed, 
but  the  fact  that  new  relations  had  arisen  between  the  partners,  by 
which  one  assumes,  as  between  them,  the  burdens  of  all,  might 
well  call  upon  the  creditor  to  act  in  such  way  as  not  to  injure  the 
retiring  partners.    Eq.  Lead.  Cases,  pt.  11,  p.  1902. 

In  such  cases  it  has  been  held  that  if  the  creditor  should  give 
up  securities  in  his  hands  and  take  those  of  the  new  firm,  or  give 
long  credit  for  additional  interest  or  new  security,  or  release  a  levy 
made,  without  the  consent  of  the  retiring  partner,  then  in  all  such 
cases  the  retiring  partner  will  be  discharged.  Story  on  Part.,  §  158 
et  seq. ;  Parsons  on  Part.,  421  et  seq. ;  Colyer  on  Part.,  554-570; 
Harris  v.  Lindsay,  4  Wash.  C.  C.  271 ;  Bedford  v.  Deakin,  2  Barn. 
&  Aid.  210. 

An  examination  of  the  cases  in  support  of  the  doctrine  of  the  text- 
books fails  to  support  the  charge  of  the  court  below.  Upon  both 
reason  and  authority,  therefore,  we  conclude  that/,  as  Mrs.  Raw- 
son  was  not  a  party  to  this  new  contract  between  the  partners,  by 
which  the  new  firm  assumed  the  debts  of  the  old,  and  had  never 
assented  thereto  or  agreed  to  be  bound  thereby,  her  rights  on  the 
promissory  note,  to  regard  all  as  principals,  have  not  been  altered 
or  impaired. 

These  principles  are  aptly  illustrated  by  the  case  before  us. 

Judgment  of  common  pleas  reversed  and  cause  remanded. 


SURETYSHIP    BY    OPERATION    OF    LAW  129 

Accord :  McAreavy  v.  Magirl,  123  Iowa  605,  99  N.  W.  193 ;  A.  F.  Shap- 
leigh  Hdwe.  Co.  v.  Wells,  90  Tex.  110,  37  S.  W.  411,  59  Am.  St.  783;  Grotte 
v.  Weil,  62  Nebr.  478,  87  N.  W.  173;  Norman  v.  Jackson  Fertilizer  Co.,  79 
Miss.  747,  31  So.  419 ;  Barnes  v.  Boyers,  34  W.  Va.  303,  12  S.  E.  708 ;  First 
Nat'l  Bank  v.  Cheney,  114  Ala.  536,  21  So.  1002;  Swire  v.  Redman,  L.  R.  1 
Q.  B.  Div.  536. 

Contra :  Colgrove  v.  Tallman,  67  N.  Y.  95,  23  Am.  Rep.  90 ;  Williams  v. 
Boyd,  75  Ind.  286;  Smith  v.  Sheldon,  35  Mich.  42,  24  Am.  Rep.  529;  Fanning 
v.  Murphy,  126  Wis.  538,  105  N.  W.  1056,  4  L.  R.  A.  (N.  S.)  666,  110  Am. 
St.  946. 


DENISON  UNIVERSITY  v.  MARY  E.  MANNING  AND 

WM.  H.  MANNING 

65  Ohio  St.  138,  61  N.  E.  706  (1901). 

The  Denison  University  commenced  its  action  against  Mary  E. 
Manning  and  Win.  II.  Manning  in  the  common  pleas  of  Montgom- 
eTyTorecover  the  balance  due  upon  a  note  executed  in  favor  of 
the  university,  of  which  the  following  is  a  copy,  viz. ; 

''$6,000.00.  Dayton,  Ohio,  April  30,  1887. 

"Three  years  after  date,  we,  or  either  of  us,  promise  to  pay  to 
the  order  of  Denison  University,  of  Granville,  Ohio,  six  thousand 
dollars,  for  value  received,  with  7  per  cent,  interest  per  annum, 
payable  semi-annually,  on  the  30th  day  of  October  and  April  of  each 
year,  and  any  instalment  of  interest  not  paid  when  due  to  bear  7 
per  cent,  interest  per  annum  until  paid.     Payable  at  Dayton,  Ohio. 

"Mary  E.  Manning, 
"W.   H.   Manning/' 

Divers  indorsements  of  interest  paid  on  the  note  were  set  out  in 
the  petition,  all  of  which  were  made  either  on  the  day  interest  was 
due,  or  after,  save  one.  That  indorsement  is  as  follows :  "April 
15,  1891,  paid  six  months'  interest  to  April  30,  1891,  $210.00."  » 
There  was  also  an  indorsement  of  $5,093.54,  paid  generally  on  the/ 
note.  The  balance  claimed  was  $906.46,  with  interest  from  April 
7,  1895,  at  seven  per  cent. 

To  this  petition  a  second  amended  answer,  admitting  the  making 
of  the  note,  but  setting  up  three  defenses,  was  filed,  which  will  be  ;; 
found  stated  in  substance  in  the  opinion.     To  this  pleading  a  de- 
murrer was  interposed,  which  being  overruled,  a  reply  was  filed  and 
the  cause  proceeded  to  trial  to  a  jury.   At  the  conclusion  of  the  evi- 
dence offered  by  defendants  the  plaintiff  moved  for  judgment,  which 
was  overruled.    Evidence  was  then  given  by  plaintiff  and  the  cause   ; 
submitted.     A  verdict  for  defendants  being  rendered  by  the  jury, 
and_motion  for  new  trial  overruled,  judgment  was  entered  on  the 
vepdkt.     This   judgment  was  affirmed  by  the  circuit  court.     The 
plaintiff  brings  error. 
9— De  Witt. 


130  THE    CONTRACT 

Spear,  ].:  Two  questions  arise  upon  the  record.  One  relates  to 
the  sufficiency  of  the  answer;  the  other  to  the  legal  effect  of  the 
evidence  of  defendants  introduced  at  the  trial. 

The  answer  sets  up  that  after  the  giving  of  the  note  and  mort- 
gage declared  upon,  to  wit,  July  7,  1887,  the  defendants,  Mary  E. 
and  W.  H.  Manning,  sold  the  real  estate  described  in  the  mort- 
gage to  one  Babbitt,  who  bought  for  himself  and  others,  who  as  part 
of  the  consideration  for  the  conveyance,  assumed  and  agreed  to 
pay  to  plaintiff  the  mortgage  note  sued  on ;  that  the  agreement  was 
in  writing  and  incorporated  in  the  deed  to  Babbitt ;  that  the  plain- 
tiff was  duly  advised  of  said  sale  and  arrangement  and  the  agree- 
ment of  the  purchaser  to  pay  the  note  and  consented  thereto,  and 
received  the  interest  (pursuant  to  the  terms  of  said  agreement)  on 
said  note  from  Babbitt  and  assigns  from  April  30,  1887,  to  April 
30,  1894;  that  subsequent  to  July  7,  1887,  the  land  was  sold  by 
Babbitt  to  one  George  A.  Slaght,  and  by  him  afterward  sold  to  his 
sister,  Emma  K.  Slaght ;  that  the  note  became  due  April  30,  1890, 
and  that  the  payment  of  the  same  was  extended  by  plaintiff  at  ma- 
turity, and  every  six  months  thereafter,  to  April  30,  1894,  by  an 
agreement  with  plaintiff  and  said  purchasers  without  the_knowle_dge 
or  consent  of  these  defendants,  for  a  valuable  consideration,  Jo  wit : 
Upon  the  agreement  that  they  should  pay  seven  per  cehtTTnterest 
semi-annually  for  and  during  each  six  months ;  that  the  purchasers 
paid  said  interest  as  above  set  forth  and  agreed  upon ;  that  payments 
of  interest  were  made  in  advance  of  various  sums  without  the 
knowledge  or  consent  of  these  defendants,  which  interest  was  so 
paid  in  full  from  April  30,  1890,  up  to  April  30,  1894 ;  that  after  the  '• 
sale  of  the  real  estate  as  above  described  these  defendants  occupied  ■ 
the  position  of  sureties  on  said  note,  and  by  reason  of  the  extending 
of  time  of  payment  and  so  receiving  the  interest  thereon,  without 
their  knowledge  and  consent,  these  defendants  are  released. 

The  demurrer  to  this  answer  raised  the  question  of  its  sufficiency 
in  law  to  constitute  a  defense.  The  first  proposition  is  that  the  sale 
and  conveyance  of  the  mortgaged  land  by  the  Mannings  to  Babbitt, 
his  assumption  as  a  part  of  the  purchase-price  to  pay  the  note  of  the 
Mannings  to  the  university,  and  the  knowledge  by  the  university  of 
that  arrangement  and  its  consent  thereto,  and  accepting  the  payment 
of  interest  from  the  purchasers,  changed  the  relation  of  the  Man- 
nings to  the  note  from  that  of  principal  makers  to  that  of  sureties 
only.  In  other  words,  if  a  principal  maker  of  a  note  and  mortgage 
given  to  secure  its  payment,  can  effect  the  sale  of  the  mortgaged 
lands,  and  obtain  an  agreement  by  the  purchaser  to  pay  the  mort- 
gage debt,  and  the  mortgagee  being  apprised  of  the  transaction,  con- 
sents to  it,  and  allows  the  purchaser  to  make  payments  on  the  note, 
he  thereby  releases  the  original  maker  as  principal  and  may  treat 
him  thenceforth  as  a  surety  only.  The  proposition  is  not  that  the 
mortgagee  agreed  to  release  the  original  debtor,  or  to  accept  the 


1»! 


SURETYSHIP    BY    OPERATION    OF    LAW  131 

urchascr  as  such  original  debtor;  no  such  averment  appears;  it  is 
plainly~~ahd  baldly  that  the  effect  in  law  of  the  consent  of  the  mort- 

Igagee  that  the  purchaser  may  pay,  and  allowing  him  to  do  so,  ipso  . 

facto  works  a  change  in  the  relation  of  the  principal  maker  to  the 
note.  Expressions  here  and  there  in  text-books  seem  to  coun- 
tenance this  conclusion,  and  there  are  decisions  of  courts  to  like 
effect.  But  is  it  sound?  That,  as  between  the  mortgagor  and  the 
purchaser,  the  general  relation  of  surety  and  principal  may  be  cre- 
ated by  reason  of  their  contract,  can  be  conceded,  but  this  falls  very 
far  short  of  changing  the  relation  of  a  mortgagor  from  a  principal 
to  a  surety  as  respects  the  mortgagee.  .The  mortgagor  has  received 
the  full  consideration  and  has  executed  nis  solemn  promise  in  writ- 
ing to  pay  the  obligation  unconditionally.  The  sale  of  the  mortgaged 
property  is~nTarte~-  between  the-parties  to  if  "solely  for  "their  advan- 
tage, and  in  no  sense  for  the  benefit  of  the  mortgagee.  He  need  not 
know,  and  ordinarily  does  not  know,  anything  about  the  transaction 
until  after  it  is  completed.  If  he  happens  to  know  that  the  negotia-  / 
tion  is  in  progress,  it  is  not  within  his  power  to  arrest  it,  nor  has  he 
any  voice  in  shaping  it.  He  is  as  absolutely  helpless  to  prevent  it 
as  is  a  total  stranger.  Incidentally  it  may  work  to  his  advantage. 
That  is,  being  an  agreement  with  the  original  payor  to  pay  the  debt 
the  creditor  may,  if  he  so  elect,  take  advantage  of  it.     Emmitt  v. 

Brophy,  42  QJiiiL_St 82.     But  the  agreement  is  not  made  for  his 

benefit ;  asHSefore  stated,  it  is  wholly  for  the  benefit  of  the  parties 
to  it.  Nor  could  they  compel  the  mortgagee  to  recognize  the  sale  or 
look  to  the  purchaser  for  the  payment  of  the  debt.  We  are  aware 
that  the  authorities  are  not  in  accord  on  the  proposition.  Among 
the  cases  favoring  the  contention  of  defendants  in  error  is  Murray 
v.  Marshall,  94  N.  Y.  611,  and  there  are  others.  On  the  other  hand, 
Teeters  v.  Lamborn,  43  Ohio  St.  144;  Boardman  v.  Larrabee,  51 
Conn.  39,  and  James  v.  Day,  37  Iowa  164,  hold  to  the  opposite  view. 
Other  decisions  of  like  import  are  found  in  the  reports,  and  the 
weight  of  authority  seems  to  support  the  contention  of  plaintiff 
in  this  respect. 

This  being  the  situation,  why  should  the  mortgagor  be  accorded 
the  right  to  compel  the  mortgagee  to  elect  between  a  repudiation  of 
the  obligation  thus  assumed  by  the  purchaser  and  a  novation  by 
which  he  releases  the  original  debtor  from  his  obligation  as  prin- 
cipal, and  consents  that  from  thenceforth  he  shall  be  regarded  as 
surety  only?  Why  should  the  creditor  be  compelled  to  trade  debtors 
or  release  any  security  he  already  holds?  Whether  the  obligation 
is  paid  by  the  maker  or  by  one  to  whom  he  has  transferred  the 
property  forming  the  security  is  a  matter  of  indifference  to  the 
payee ;  for  that  purpose  one  hand  is  as  good  as  another.  We  are  of 
opinion  that  the  proposition  is  not  sound ;  that  the  facts  stated  do  not "t 
show  that  the  Mannings  became  sureties  as  between  Them  and  the  - 
university.     Hence,  the  further  proposition  that  the  Mannings  are 


132 


THE    CONTRACT 


released  because  of  the  alleged  agreement  to  extend  the  time  for 
payment  of  the  principal,  by  reason  of  a  promise  to  pay  seven  per 
cent,  interest  without  their  consent,  is  without  support  in  law. 
Judgment  reversed. 

Accord:   Shepherd  v.  May,  115  U.  S.  505,  29  L.  ed.  456;  Mulvane  v.  Sedg- 

fe  S  xTan^  i?f  6dPac"  1038'  5S  L-  R-  A-  552:  Webster  v.  Fleming,  178  111. 
140,  52  N.  E.  975 ;  Martin  v.  Humphrey,  58  Nebr.,  414,  78  N.  W.  715 ;  Board- 
man  v.  Larrabee,  51  Conn.  39. 

?if°9notrA  :  Iierd  lJu2hy>  133  Cal-  55>  65  Pac-  139=  CaIvo  v-  Davies,  73  N.  Y. 
S  «    t -xt       £  13°;TGeorge  v.  Andrews,  60  Md.  26,  45  Am.  Rep.  706;  Union 

:2irAiLo:Vo:si67°s.vwH5a6nirrd' 143  u- s- 187> 36  L- ed- n8;  Terry  v- Groves' 


i 


SECTION  10.    THE  DOCTRINE  OF  ESTOPPEL  AS  AP- 
PLIED TO  CONTRACTS  OF  SURETYSHIP 

HOFFMAN,  ADMX,  ET  AL.  v.  FLEMING" 
66  Ohio  St.  143,  64  N.  E.  63  (1902). 

Davis,  J. :  This  is  an  action  by  a  legatee  under  the  will  against 
the  executor  and  his  sureties,  on  the  executor's  bond.  The  recital 
of  the  bond,  which  is  in  due  form,  is  that  Ripley  C.  Hoffman  has 
been  appointed,  by  the  probate  court  of  Franklin  county,  Ohio, 
executor  of  the  last  will  and  testament  of  Margaret  H.  Fleming. 
One  of  the  conditions  of  the  bond  is  that  "said  Ripley  C.  Hoffman, 
as  executor  as  aforesaid,  shall  administer  according  to  law  and  the 
will  of  the  testator"  all  her  goods,  chattels,  rights  and  credits,  etc. 
Thus  the  facts  that  Margaret  H.  Fleming  died  leaving  a  will  and 
that  Ripley  C.  Hoffman,  the  principal  in  the  bond,  was  the  executor 
of  that  will,  are  formally  stated  and  made  the  basis  of  the  contract.. 
As  was  said  by  this  court  long  ago,  "In  cases  where  the  condition  of  ~ 
a  deed  has  reference  to  any  particular  thing,  the  obligor  shall  be 
estopped  to  say  there  is  no  such  thing."  For  example,  if  a  condition 
be  that  a  man  and  his  wife  shall  do  an  act,  the  man  will  be  estopped 
to  say  he  has  no  wife;  or  if  the  condition  be  to  perform  the  cov- 
enants of  an  indenture,  the  obligor  is  estopped  to  say  there  is  no 
indenture.  Douglass  v.  Scott,  5  Ohio  194,  198;  Herman  on  Estop- 
pel, §§  634,  636.  The -obligors  can  not  be  allowed  to  blow  hot  and 
cold  ;  in  one  breath  obtaining  control  of  the  estate  by  vouching  for 
the  official  character  of  the  principal,  recognizing  the  will  under  - 
which  he  was  appointed  and  holding  themselves  bound  for  due  ad-  \^ 
ministration  according  to  law  and  the  will,  and  in  the  next  breath 
denying  the  will  and  fiduciary  relation  of  the  principal  and  malad-. 
ministering  the  property  of  legatees  with  impunity.  It  does  not  lie 
in  their  mouths  to  say  that  there  was  no  legal  validity  in  the  acts 


DOCTRINE  OF  ESTOPPEL  133 

by  which  they  obtained  the  possession  of  the  property.  Their  bond, 
given  under  the  order  of,  and  approved  by,  the  court,  gave  color  to 
the  executorship  of  Hoffman,  and  after  the  estate  has  been  admin- 
istered by  him  for  years,  under  the  orders  of  the  court  appointing 
him,  and  in  accordance  with  the  will,  until  a  deficit  occurs,  it  is  too 
late  for  the  obligors  on  the  executor's  bond  to  say  that  the  court 
had  no  jurisdiction  to  probate  the  will  or  to  appoint  the  executor; 
that  there  is  no  will  and  that  there  never  was  an  executor.  Kelly 
v.  State,  25  Ohio  St.  567,  577,  578. 

Nevertheless,  the  counsel  for  the  plaintiff  in  error  strenuously 
and  ably  argue  that  the  sureties  may  show  that  the  appointment  of 
the  executor  was  without  jurisdiction,  unauthorized  by  law  and  void, 
and  that  they  may  thus  be  discharged  from  liability  on  their  bond. 
It  is  not  to  be  denied  that  this  position  has  some  support  among  re- 
ported cases,  notably  in  Mississippi  and  Georgia ;  but  it  seems  to  us 
that  the  weight  of  authority  is  distinctly  and  overwhelmingly  against 
it.  Indeed,  if  the  doctrine  of  estoppel  may  be  applied  to  sureties 
on  an  administration  bond,  or  a  guardian's  bond,  so  that  by  its 
recitals  they  may  not  be  allowed  to  deny  that  their  principal  has 
been  duly  appointed  (Bigelow  on  Estoppel,  373;  Herman  on  Estop- 
pel, §  634),  it  is  difficult  to  perceive  how  a  want  of  jurisdiction  in  the 
appointing  court  could  alter  the  rule.  The  effect  of  the  recitals  is 
just  the  same,  and  it  would  be  just  as  inequitable  not  to  estop  the 
obligors  in  the  case  where  the  appointment  was  made  without  juris- 
diction, and  assets  obtained  thereby,  as  in  a  case  where  it  was  made 
irregularly  by  a  wrongful  exercise  of  jurisdiction.  Accordingly 
it  was  said  in  New  York  that  "the  execution  of  the  bond  precludes 
both  principals  and  sureties  from  gainsaying  the  surrogate's  juris- 
diction in  any  proceedings  for  the  assets  which  the  appointment  and 
bond  enabled  the  principal  to  receive."  People  v.  Falconer,  2  Sandf. 
81,  83;  (superior  court)  approved  in  Johnston  v.  Smith,  25  Hun 
(N.  Y.)  171.  In  Harbaugh  v.  Albertson,  102  Ind.  69,  when  in  re- 
plevin proceedings  before  a  justice  of  the  peace,  a  surety  on  the  re- 
plevin bond  by  his  execution  "thereof  enabled  the  plaintiffs  in  the 
replevin  to  obtain  the  possession  of  the  property  in  controversy,  it 
was  held  that  "the  surety  should  be  estopped  from  setting  up  as  a 
defense  to  an  action  on  the  bond,  that  the  justice  before  whom  the 
action  was  commenced  had  no  jurisdiction  over  the  persons  of  the 
parties." 

In  Iredell  v.  Barbee,  9  Iredell  (N.  C.)  250,  it  was  held  that  where 
a  court  has  no  power  to  appoint  a  guardian,  but  does  appoint  one, 
and  he  gives  bond  with  sureties  and  takes  possession  of  the  estate 
of  the  ward,  it  is  not  competent  for  any  of  the  obligors  in  such 
bond  to  object  to  its  validity  on  the  ground  of  want  of  power  in  the 
court  to  make  the  appointment. 

It  was  held  in  Arkansas,  Norton  v.  Miller,  25  Ark.  108,  that  it 
is  irregular  and  erroneous  for  the  probate  court  of  one  county  to 


134  THE    CONTRACT 

appoint  a  guardian  for  minors  who  reside  with  their  property  in 
another  county ;  and  that  hoth  the  principal  and  the  sureties  on 
the  guardian's  bond  are  estopped  from  denying  the  truth  of  the  re- 
citals in  the  bond  that  the  principal  was  appointed  and  that  they  will 
not  be  permitted  to  deny  the  jurisdiction  of  the  court  making  the 
appointment. 

In  Cutler  v.  Dickinson,  8  Pick.  386,  it  appeared  on  examining  the 
records  of  the  probate  office  that  there  was  no  decree,  nor  any  other/ 
evidence  of  the  appointment  of  the  administrator ;  yet  in  a  suit  on 
the  bond  of  the  administrator  it  was  held  that  the  obligors  werel 
estopped  to  deny  that  the  principal  was  appointed  administrator. 

The  People  v.  Norton,  9  N.  Y.  176,  was  a  case  in  which  a  court 
having  general  jurisdiction  of  all  cases  of  trust  made  an  irregular 
and  erroneous  appointment  of  a  trustee,  no  notice  of  the  proceeding 
having  been  given  to  the  cestuis  que  trust,  and  this  was  set  up  as  a 
defense  in  an  action  on  the  trustee's  bond.  The  court,  per  Ruggles, 
C.  J.,  said  that:  "This  is  an  objection  which  neither  the  trustee  nor 
his  surety  can  be  allowed  to  make.  Lynch  (the  trustee)  got  pos- 
session of  the  trust  estate  under  the  proceedings  by  color  of  which 
he  claimed  to  be  trustee,  and  Norton  voluntarily  undertook  as  his 
surety  that  he  should  faithfully  administer  the  trust.  If  the  pro- 
ceeding was  irregular  for  want  of  notice  to  the  children  of  Airs. 
, Lynch,  they  might  object  to  it  in  a  proper  manner  for  that  cause; 
but  Lynch,  after  having  obtained  the  property  upon  the  pretense  of 
being  the  trustee,  can  not  be  permitted  to  deny  his  liability  to  account 
as  such.  The  defendant  who  became  his  surety  in  order  that  he 
might  take  the  trust  property,  is  for  a  like  reason  precluded  from 
denying  his  liability  as  surety."  This  case  was  cited  with  approval 
in  Bassett  v.  Crafts,  129  Mass.  513,  in  which  it  was  held  that  the 
sureties  on  a  trustee's  bond  can  not  in  an  action  against  them  on  the 
bond,  impeach  the  validity  of  the  principal's  appointment. 

In  Gray  v.  State,  78  Ind.  68,  upon  an  extended  review  of  authori- 
ties, it  was  held  that  the  surety  on  a  guardian's  bond,  executed  to 
enable  him  to  sell  his  ward's  real  estate,  is  estopped,  after  the  sale 
and  receipt  of  the  money,  to  deny  the  appointment  of  the  guardian. 
The  same  doctrine  runs  through  the  following  cases :  Fridge  v. 
State,  3  Gill  &  Johnson  (Md.)  103;  People  v.  Huson.  78  Cal.  154; 
Middleton  v.  State,  120  Ind.  166;  Williamson  v.  Woodman,  73 
Maine  163;  State  v.  Stark,  75  Mo.  566;  Mayor  v.  Harrison,  30  N. 
J.  L.  73. 

In  conclusion,  it  seems  to  me  that  the  decision  of  this  court  in 
Shroyer  v.  Richmond,  16  Ohio  St.  455.,  is  decisive  of  this  case,  in 
more  than  one  aspect  of  it.  This  was  also  an  action  upon  a  bond,  the 
bond  of  a  guardian.  In  that  case  also  the  Q'eneral  jurisdiction  of 
the  probate  court  was  not  attacked,  but  it  was  claimed  that  the  ap- 
pointment was  made  without  authority  of  law  ;  and  in  that  case 
also  it  was  claimed  that  the  bond  was  invalid  because  the  appoint- 


DOCTRINE    OF    ESTOPPEL  1 35 

rnent  itself  was  a  nullity.  On  the  trial,  "to  maintain  the  issues  on 
their  part,  the  defendants  offered  to  prove  to  the  jury,  by  parol  tes- 
timony, that  at  the  time  of  the  appointment  of  Coblentz  and  Shroyer, 
respectively,  as  guardians  of  Long,  he  was  neither  a  minor,  a  lunatic, 
insane  person,  an  idiot,  nor  a  deaf  and  dumb  person,  incapable  of 
taking  charge  of  his  affairs ;  and  that  there  was  no  testimony  offered 
before  the  court,  at  the  time  of  making  of  either  of  said  appoint- 
ments, to  show  that  Long  was  a  minor,  lunatic,  insane  person,  idiot, 
or  deaf  and  dumb  person,  incapable  of  taking  charge  of  his  affairs  ; 
and  that  he  was  not  brought  before  the  court;  and  that  there  was 
no  jury  summoned  by  the  court,  nor  inquest  held  by  the  jury,  nor  a 
jury  sworn  for  that  purpose,  nor  any  testimony  offered,  before  a 
jury  or  the  judge,  to  show  that  he  was  a  deaf  and  dumb  person, 
incapable  of  taking  charge  of  his  affairs ;  nor  any  verdict  of  a  jury 
finding  him  to  be  such  a-  person."  In  other  words,  the  defendants, 
the  sureties  on  the  bond,  while  conceding  that  the  probate  court  was 
the  proper  tribunal  to  appoint  guardians,  just  as  in  this  case  it  is  the 
proper  tribunal  for  the  probate  of  wills  and  the  appointment  of  ex- 
ecutors, yet  claimed  that  the  statutes  in  relation  to  the  appointment 
of  guardians  had  not  been  complied  with,  as  it  is  claimed  here.  Yet 
in  that  case  the  court  held,  as  already  noted  in  this  opinion,  that/fan 
order  made  by  a  probate  court,  in  the  exercise  of  jurisdiction,  can 
not  be  collaterally  impeached.  The  record  showing  nothing  to  the 
contrary,  it  will  be  conclusively  presumed,  in  all  collateral  proceed- 
ings, that  such  order  was  made  upon  full  proof  of  all  the  facts  nee- 
essary  to  aiithori"ze_aLy  It  will  be  noted  that  the  language  of  the 
court  is  "in  the  exercise  of  jurisdiction,"  not  in  the  proper  exercise 
of  jurisdiction.  It  was  further  held  that  "in  a  suit  on  a  guardian's 
'bond,  containing  a  recital  of  the  appointment  of  such  guardian  by 
the  proper  authority,  the  obligors  are  estopped  to  deny  the  fact  thus 
jrecited,  or  to  question  the  validity  of  the  appointment."  The  phrase 
!"the  proper  authority"  in  the  syllabus  was  evidently  not  intended  to 
limit  application  of  the  rule  as  to  estoppel,  but  was  used  rather  with 
reference  to  the  facts  of  the  case ;  for  Scott,  J.,  in  the  opinion  says  : 
"This  bond  recites  the  appointment  of  Coblentz,  by  the  proper  au- 
thority, as  guardian  of  Long.  By  executing  this  bond  they  obtained 
for  their  principal  the  possession  and  control  of  his  ward's  prop- 
erty, and  can  not  now  be  permitted  to  escape  liability  to  account 
therefor  by  denying  the  recitals  of  their  own  bond.  They  are 
estopped  to  do  so."  Evidently  it  was  in  the  mind  of  the  court  that 
the  obtaining  of  possession  of  assets  through  the  medium  of  a  court 
which  had  general  jurisdiction  over  the  subject-matter,  although  it 
may  have  been  improperly,  or  even  unlawfully,  exercised,  gave  color 
to  the  alleged  appointment  of  the  guardian  and  aided  in  the  perpe- 
tration of  a  wrong  which  should  be  prevented  by  estoppel.  And  that 
in  our  opinion  is  precisely  the  situation  in  this  case. 

See  also  State  v.  Piatt,  15  Ohio  15,  in  which  it  was  held  that 


136  THE    CONTRACT 

where  a  clerk  of  the  court  of  common  pleas  had  been  appointed,  had 
given  bond  and  had  entered  upon  the  duties  of  his  office,  neither 
he  nor  his  sureties  could  show  that  he  had  failed  to  qualify  by  taking 
the  oath  of  office ;  and  that  they  will  not  be  permitted  to  defend 
themselves  upon  the  ground  that  he  was  a  mere  usurper. 

Our  conclusion  is  that,  both  upon  reason  and  authority,  the  plain- 
tiffs in  error  should  be  estopped  from  questioning  the  rights  of  the 
defendant  in  error  under  the  will,  and  from  disputing  the  validity 
of  the  appointment  of  Hoffman  as  executor,  and  from  denying  their 
liability  as  sureties  on  the  executor's  bond.  The  judgment  of  the 
circuit  court,  reversing  the  judgment  of  the  court  of  common  pleas 
is  affirmed. 

Burket,  Shauck  and  Price,  JJ.,  concur. 

Accord:  Shaw  v.  Havekluft,  21  111.  128;  Monteith  v.  Commonwealth,  15 
Grat.  (Va.)  172;  Hauenstein  v.  Gillespie,  73  Miss.  742,  19  So.  673,  55  Am.  St. 
569;  Hine  v.  Morse,  218  U.  S.  493,  21  Ann.  Cas.  782. 

See  also  Washington  Ice  Co.  v.  Webster,  125  U.  S.  426,  31  L.  ed.  799; 
Hundley  v.  Filbert,  73  Mo.  34;  Harris  v.  State,  60  Ark.  212,  29  S.  W.  751. 

Where  the  bond  recites  that  an  appeal  has  been  perfected  the  sureties  are 
estopped  to  deny  it  (Meserve  v.  Clark,  115  111.  580,  4  N.  E.  770),  even  though 
an  appeal  in  such  case  was  prohibited  by  law.  (Gudtner  v.  Kilpatrick,  14 
Nebr.  347,  15  N.  W.  708.) 

A  surety  is  estopped  to  deny  the  existence  of  a  contract  recited  in  the  bond 
(Hayden  v.  Cook,  34  Nebr.  670,  52  N.  W.  165;  Price  v.  Scott,  13  Wash.  574, 
43  Pac.  634),  but  if  the  contract,  the  existence  of  which  is  admitted  in  the 
bond,  has  been  obtained  by  fraud,  the  sureties  are  not  estopped  to  deny  its 
validity  after  the  principal  has  repudiated  it  (Hazard  v.  Irwin,  18  Pick. 
(Mass.)  95;  Henry  v.  Sneed,  99  Mo.  407,  12  S.  W.  663,  17  Am.  St.  580). 


SECTION  11.    CONSTRUCTION  OF  THE  CONTRACT 

MASON  v.  PRITCHARD 

12  East  227  (1810). 

The  defendant  engaged  in  writing  to  guaranty  the  plaintiff  "f$r 
any  goods  he  hath  or  may  supply  my  brother  W.  P.  with  to  the 
amount  of  £100,"  and  declared  in  assumpsit  as  upon  a  contract  by 
the  defendant  to  guaranty  goods  to  be  at  any  time  afterward  deliv- 
ered to  his  brother  to  that  amount.  It  appeared  at  the  trial  before 
Wood,  B.,  at  Worcester,  that  at  the  time  when  the  guaranty  was 
given  goods  had  been  supplied  to  W.  P.  to  the  amount  of  £66,  and 
another  parcel  was  supplied  afterward,  amounting  together  to  £124, 
all  which  had  been  paid  for ;  and  the  sum  now  in  dispute  was  for  a 
further  supply  of  goods  to  W.  P.  And  the  question  was,  whether  I" 
this  were  a  continuing  contract  for  guarantying  the  supply  of  goods  * 
at  any  time  afterward  furnished  as  long  as  the  parties  continued  to 


V 


CONSTRUCTION 


deal  together ;  or,  whether  it  were  confined  to  the  first  hundred 
pounds'  worth  of  goods  furnished?  The  learned  judge  held  it  to  be 
a  continuing  contract  to  guaranty  to  the  extent  of  £100  goods  which 
might  at  any  time  be  furnished  to  the  brother,  till  notice  to  put  an 
end  to  it ;  and  the  plaintiff  recovered  accordingly ;  but  leave  was 
given  to  move  to  enter  a  nonsuit  if  the  court  thought  that  this  was 
not  the  true  construction  of  the  contract.  Upon  which  Abbott  now 
moved  to  enter  a  nonsuit ;  contending  for  the  limited  construction 
of  the  guaranty. 

But  all  the  court  were  of  opinion  with  the  plaintiff  that  this  was  a 
continuing  or  standing  guaranty  to  the  extent  of  £100,  which  might 
at  any  time  become  due  for  goods  supplied  until  the  credit  was  re- 
called. The  words,  they  said,  were  to  be  taken  as  strongly  against 
the  party  giving  the  guaranty  as  the  sense  of  them  would  admit  of  ; 
and  the  meaning  was,  that/the  defendant  would  be  answerable  at  all 
events  for  goods  supplied  tcThis  brother  to  the  extent  of  £100  at  any 
time,  but  that  he  would  not  be  answerable  for  more  than  that  sum. 

Rule  refused. 

Accord :    Merle  v.  Wells,  2  Camp.  413 ;  Mayer  v.  Isaac,  6  M.  &  W.  605. 


LAWRENCE  v.  McCALMONT  ' 

2  How.  (U.  S.)  426,  11  L.  cd.  326  (1844). 

Justice  Story:  Some  remarks  have  been  made  on  the  argument 
here  upon  the  point  in  what  manner  letters  of  guaranty  are  to  be 
construed ;  whether  they  are  to  receive  a  strict  or  a  liberal  interpre- 
tation^ We  have  no  difficulty  whatsoever  in  saying  that  instruments 
of  this  sort  ought  to  receive  a  liberal  interpretation.  By  a  liberal 
interpretation  we  do  not  mean  that  the  words  should  be  forced  out 
of  their  natural  meaning,  but  simply  that  /the  words  should  receive 
a_fjjr_jmjd_reasonable  interpretation,  so  as  to  attain  the  objects  for 
which  the  instrument  is  designed  and  the  purposes  to  which  it  is 
appllgdV  We  should  never  forget  that  letters  of  guaranty  are  com- 
mercial instruments — generally  drawn  up  by  merchants,  in  brief 
language — sometimes  inartificial,  and  often  loose  in  their  structure 
and  form ;  and  to  construe  the  words  of  such  instruments  with  a  nice 
and  technical  care  would  not  only  defeat  the  intentions  of  the  par- 
ties, but  render  them  too  unsafe  a  basis  to  rely  on  for  extensive 
credits  so  often  sought  in  the  present  active  business  of  commerce 
throughout  the  world.  The  remarks  made  by  this  court  in  the  case 
of  Bell  v.  Bruen  (1  How.  R.  169,  186)  meet  our  entire  approbation. 
The  same  doctrine  was  asserted  in  Mason  v.  Pritchard  (12  East  R. 
227),  where  a  guaranty  was  given  for  any  goods  he  hath  or*  may 
supply  W.  P.  with,  to  the  amount  of  £100;  and  it  was  held  by  the 


138  THE    CONTRACT 

court  to  be  a  continuing  guaranty  for  goods  supplied  at  any  time  to 
W.  P.  until  the  credit  was  recalled,  although  goods  to  more  than 
ilOO  had  been  first  supplied  and  paid  for;  and  the  court  on  that 
occasion  distinctly  stated  that  the  words  were  to  be  taken  as  strongly 
against  the  guarantor,  as  the  sense  of  them  would  admit  of.  The 
same  doctrine  was  fully  recognized  in  Haigh  v.  Brooks  (10  Adol. 
&  El.  309)  and  in  Mayer  v.  Isaac  (6  Mees.  &  Wels.  605),  and  espe- 
cially expounded  in  the  opinion  of  Mr.  Baron  Alderson.  It  was  the 
very  ground,  in  connection  with  the  accompanying  circumstances, 
upon  which  this  court  acted  in  Lee  v.  Dick  (10  Peters  482)  and  in 
Mauran  v.  Bullus  (16  Peters  528).  Indeed,  if  the  language  used  be 
ambiguous  and  admits  of  two  fair  interpretations,  and  the  guarantee 
had  advanced  his  money  upon  the  faith  of  the  interpretation  most 
favorable  to  his  rights,  that  interpretation  will  prevail  in  his  favor ; 
for  it  does  not  lie  in  the  mouth  of  the  guarantor  to  say  that  he  may, 
without  peril,  scatter  ambiguous  words,  by  which  the  other  part)-  is 
misled  to  his  injury. 

Accord:  Drmnmond  v.  Prestman,  12  Wheat.  (U.  S.)  515,  6  L.  cd.  712; 
Taussig  v.  Reid,  145  111.  488,  32  N.  E.  918,  36  Am.  St.  504 ;  Hoey  v.  Jarman, 
39  N.  J.  L.  523. 


NATHANIEL  RUSSELL  v.  JOHN  I.  CLARK'S  • 
EXECUTORS  ET  AL. 

7  Crunch  (U.  S.)  69,  3  L.  cd.  271   (1812). 

Appeal  from  the  circuit  court  of  the  United  States  for  the  dis- 
trict of  Rhode  Island.  Nathaniel  Russell  filed  his  bill  alleging  that 
Jonathan  Russell,  in  behalf  of  Robert  Murray  &  Co.,  drew  on  them 
certain  bills  of  exchange,  which  the  complainant  indorsed  for  their 
accommodation,  and  had  been  obliged  to  pay.  That  he  made  those 
indorsements  on  the  faith  of  the  following  letters  from  Clark  & 
Nightingale : 

"Providence,  20th  January,  1796. 
"Nathaniel  Russell,  Esq.  : 

"Dear  Sir — Our  friends,  Messrs.  Robert  Murray  &  Co.,  mer- 
chants in  New  York,  having  determined  to  enter  largely  into  the 
purchase  of  rice,  and  other  articles  of  your  produce  in  Charleston, 
but  being  entire  strangers  there,  they  have  applied  to  us  for  letters 
of  introduction  to  our  friend.  In  consequence  of  which,  we  do  our- 
selves the  pleasure  of  introducing  them  to  your  correspondence  as 
a  house  on  whose  integrity  and  punctuality  the  utmost  dependence 
may  be  placed ;  they  will  write  you  the  nature  of  their  intentions, 
and  you  may  be  assured  of  their  complying  fully  with  any  contract 
or  engagements  they  may  enter  into  with  you.    The  friendship  we 


CONSTRUCTION  139 

have  for  these  gentlemen  induces  us  to  wish  you  will  render  them 
every  service  in  your  power;  at  the  same  time,  we  flatter  ourselves 
the  correspondence  will  prove  a  mutual  benefit. 
"We  are,  with  sentiments  of  esteem, 
"Dear  sir, 

"Your  most  obedient  servants, 

"Clark  &  Nightingale." 

"Providence,  21st  January,  1796. 
"Nathaniel  Russell,  Esq.  : 

"Dear  Sir — We  wrote  you  yesterday  a  letter  of  recommendation 
in  favor  of  Messrs.  Robert  Murray  &  Co.  We  have  now  to  request 
that  you  will  render  them  every  assistance  in  your  power.  Also  that 
you  will,  immediately  on  the  receipt  of  this,  vest  the  whole  of  what 
funds  you  have  of  ours  in  your  hands  in  rice,  on  the  best  terms  you 
can.  If  you  are  not  in  cash  for  the  sales  of  the  China  and  Nankins, 
perhaps  you  may  be  able  to  raise  the  money  from  the  bank,  until 
due ;  or  purchase  the  rice  upon  a  credit,  till  such  time  as  you  are  to 
be  in  cash  for  them;  the  truth  is,  we  expect  rice  will  rise,  and  we 
want  to  improve  the  amount  of  what  property  we  can  muster  in 
Charleston,  vested  in  that  article,  at  the  current  price ;  our  Mr. 
Nightingale  is  now  at  Newport,  where  it  is  probable  he  will  write 
you  on  the  subject. 

"We  are,  dear  sir, 

"Your  most  obedient  servants, 

"Clark  &  Nightingale." 

Marshall,  C  J.,  delivered  the  following  opinion : 
This  is  a  suit  in  chancery  instituted  for  the  purpose  of  obtaining 
from  the  defendants,  payment  of  certain  bills  of  exchange  drawn  by 
Jonathan  Russell,  an  agent  of  Robert  Murray  &  Co.,  and  indorsed 
by  Nathaniel  Russell ;  which  bills  were  protested  for  nonpayment, 
and  have  since  been  taken  up  by  the  indorser.  The  plaintiff  con- 
tends that  the  house  of  Clark  &  Nightingale  had  rendered  itself  re- 
sponsible for  these  bills  by  two  letters  addressed  to  him,  one  of  the 
20th  and  the  other  of  the  21st  of  January,  1796,  on  the  faith  of 
which  his  indorsements,  as  he  says,  were  made. 

The  law  will  subject  a  man,  having  no  interest  in  the  transaction, 
to  pay  the  debt  of  another,  only  when  his  undertaking  manifests  a 
clear  intention  to  bind  himself  for  that  debt.    Words  of  doubtful 
import  ought  not,  it  is  conceived,  to  receive  that  construction.    It  is" 
.  the  duty  of  the  individual,  who  contracts  with  one  man  on  the  credit 
■  of  another,  not  to  trust  to  ambiguous  phrases  and   strained  con-    ' 
"•/  structions,  but  to  require  an  explicit  and  plain  declaration  of  .the,, 
j    obligation  he  is  about  to  assume.    In  their  letter  of  the  20th,  Clark 
&  Nightingale  indicate  no  intention  to  take  any  responsibility   on 
themselves,  but  say  that  Mr.  Russell  may  be  assured  Robert  Murray 


140  THE    CONTRACT 

&  Co.  will  comply  fully  with  their  engagements.  In  their  letter  of  the 
21st  they  speak  of  the  letter  of  the  preceding  day  as  a  letter  of  rec- 
ommendation, and  add,  "we  have  now  to  request  that  you  will  en- 
deavor to  render  them  every  assistance  in  your  power." 

How  far  ought  this  request  to  have  influenced  the  plaintiff? 
Ought  he  to  have  considered  it  as  a  request  that  he  would  advance 
credit  or  funds  for  Robert  Murray  &  Co.,  on  the  responsibility  of 
Clark  &  Nightingale,  or  simply  as  a  strong  manifestation  of  the 
friendship  of  Clark  &  Nightingale  for  Murray  &  Co.  and  of  their 
solicitude  that  N.  Russell  should  aid  their  operations  as  far  as  his 
own  view  of  his  interests  would  induce  him  to  embark  in  the  com- 
mercial transactions  of  a  house  of  high  character,  possessing  the 
particular  good  wishes  of  Clark  &  Nightingale? 

It  is  certain  that  merchants  are  in  the  habit  of  recommending 
correspondents  to  each  other  without  meaning  to  become  sureties 
for  the  person  recommended ;  and  that,  generally  speaking,  such  acts 
are  deemed  advantageous  to  the  person  to  whom  the  party  is  intro- 
duced, as  well  as  to  him  who  obtains  the  recommendation. 

These  letters  are  strong,  but  they  contain  no  intimation  of  any' 
intention  of  Clark  &  Nightingale  to  become  answerable  for  Robert 
Murray  &  Co.,  and  they  are  not  destitute  of  expressions  alluding  to 
that  reciprocity  of  benefit  which  results  from  the  intercourse  of 
merchants  with  each  other.  "The  friendship,"  say  they,  in  their  let- 
ter of  the  20th,  "we  have  for  these  gentlemen,  induces  us  to  wish 
you  will  render  them  every  service  in  your  power,  at  the  same  time 
we  flatter  ourselves  this  correspondence  will  prove  a  mutual  benefit." 

Mr.  Russell  appears  to  have  contemplated  the  transaction  as  one 
from  which  a  fair  advantage  was  to  be  derived.  He  received  a  com- 
mission on  his  indorsements. 

The  court  can  not  consider  these  letters  as  constituting  a  contract 
by  which  Clark  &  Nightingale  undertook  to  render  themselves  liable 
for  the  engagements  of  Robert  Murray  &  Co.  to  Nathaniel  Russell.  V- 
Had  it  been  such  a  contract,  it  would  certainly  have  been  the  duty 
of  the  plaintiff  to  have  given  immediate  notice  to  the  defendants  of 
the  extent  of  his  engagements.  / 

Bill  dismissed  and  cause  remanded. 

Accord:  Miller  v.  Stewart,  9  Wheat.  (U.  S.)  680,  6  L.  ed.  189;  State  v. 
Churchill,  48  Ark.  426,  3  S.  W.  352,  880;  Schoonover  v.  Osborne,  108  Iowa 
453,  79  N.  W.  263 ;  Markland  Mining  &c.  Co.  v.  Kimmel,  87  Ind.  560 ;  State 
v.  Medary,  17  Ohio  554 ;  Morgan  v.  Boyer,  39  Ohio  St.-324,  48  Am.  Rep.  454 ; 
Tomlinson  v.  Simpson,  33  Minn.  443,  23  N.  W.  864.  -% 

Where  there  is  no  ambiguity  on  the  face  of  the  instrument  it  is  error  to 
admit  evidence  of  the  circumstances  surrounding  its  execution.  McShane  Co. 
v.  Padian,  142  N.  Y.  207,  36  N.  E.  880. 


£M,<  "      r'  "j   ' 


CONSTRUCTION   ,    *  M  /^  >.t^    ,  141 

YOUNG,  APPELLANT,  v.  AMERICAN  BONDING 
COMPANY  OF  BALTIMORE 

228  Pa.  373,  77  Atl.  623  (1910). 

Opinion  by  Mr.  Justice  Stewart. 

A  recital  of  the  facts  is  necessary  to  an  understanding  of  the 
questions  involved.  The  action  was  against  principal  and  surety  in 
a  bond  of  $25,000  conditioned  on  the  completion  of  certain  build- 
ings and  improvements  within  a  stipulated  time.  The  plaintiffs  be- 
ing the  owners  of  certain  real  estate  at  Atlantic  City  contracted  by 
written  article  of  agreement  dated  February  26,  1906,  to  sell  and 
convey  the  same  to  Norman  Kellogg,  one  of  the  appellants.  The 
agreement  provided  that  the  consideration  should  be  a  purchase-  ; 
money  mortgage  for  $500,000  to  secure  an  issue  of  first-mortgage 
gold  bonds  of  like  amount  bearing  interest  at  the  rati  of  six  per 
cent.,  payable  semi-annually,  with  a  sinking  fund  provision  of 
$10,000  yearly,  the  whole  issue  of  bonds  to  be  redeemable  at  any 
understood  period  after  three  years,  and  to  become  due  and  payable 
at  the  expiration  of  ten  years,  the  mortgage  to  be  held  by  the  Land 
Title  &  Trust.  Company  of  Philadelphia  as  trustee  for  the  bond- 
holders. It  was  further  stipulated  that  of  the  bonds  $400,000  were 
to  be  forthwith  issued  to  the  vendors,  and  the  remaining  $100,000 
were  to  be  held  by  the  trustee,  to  be  paid  over  upon  the  order  of 
Kellogg  upon  the  completion  by  him  or  his  as^'gns  of  certain  build- 
ings and  improvements  which  he  had  covenanted  to  make  on  the 
purchased  premises,  as  part  of  the  consideration,  at  an  actual  cost 
of  not  less  than  $350,000.  Another  provision  in  the  contract  was  that 
in"! case"  the  vendees  should  organize  a  corporation  for  the  purpose  of 
improving  the  property  and  conveyed  the  title  to  such  corporation, 
the  corporation  should  at  the  request  of  the  grantor  execute  its 
bonds  to  the  amount  of  $500,000  to  be  secured  by  the  purchase- 
money  mortgage  above  provided  for,  thereby  making  them  a  first 
lien.  Still  another  was  that  inasmuch  as  no  cash  consideration  was 
being  paid  on  the  purchase,  in  order  to  indemnify  the  vendors 
against  loss  of  rentals  in  case  of  failure  of  the  vendee  to  make  the 
improvements  stipulated  for  within  the  required  time,  the  latter 
should  furnish  a  bond  with  security  in  the  sum  of  $75,000  (after- 
ward reduced  to  $25,000)  to  protect  against  such  contingency.  The 
contract  was  to  take  effect  and  become  binding  on  the  parties  only 
upon  the  execution  and  delivery  of  this  bond.  In  compliance  with  this 
stipulation  the  bond  here  sued  on  was  furnished  and  accepted  March 
9,  1906.  It  recites  the  fact  of  agreement  of  sale  and  purchase,  the 
consideration,  and  the  reason  and  purpose  in  requiring  the  bond, 
followed  by  this  condition :  "Now  therefore  the  condition  of  this 
obligation  is  such  that  if  the  said  principals  shall  well  and  faithfully 


142  THE    CONTRACT 

construct  and  complete  said  improvements  of  the  value  of  three 
hundred  and  fifty  thousand  dollars  ($350,000)  upon  said  property, 
as  provided  in  said  agreement,  on  or  before  the  31st  day  of  Decem- 
ber, 1906,  then  this  obligation  to  be  null  and  void ;  otherwise  it  shall 
remain  in  full  force  and  effect."  The  obligors  were  Kellogg  and  two 
others  who  signed  as  principals,  and  the  American  Bonding  Com- 
pany as  surety.  Kellogg  and  the  bonding  company  were  the  only 
parties  served,  and  the  case  proceeded  against  them.  The  facts  as 
developed  on  the  trial  showed  entire  failure  on  the  part  of  Kellogg 
to  make  the  improvements  stipulated  for,  although  a  corporation  or- 
ganized by  him  to  accomplish  this  undertaking  had  expended  in  the 
attempt  before  its  abandonment  upward  of  $60,000.  A  verdict  was 
rendered  for  the  plaintiffs,  which  upon  a  point  reserved,  affecting 
only  the  bonding  company,  was  set  aside  as  to  the  bonding  company 
by  the  court,  and  judgment  entered  for  the  latter  non  obstante.  This 
appeal  is  from  the  judgment  so  entered.  Upon  the  admitted  facts 
the  learned  trial  judge  held  that,  in  the  course  of  settlement  between 
the  plaintiffs  and  Kellogg,  there  had  been  such  a  departure  from  the 
terms  of  the  original  contract  as  relieved  the  surety.  The  variance 
was  in  connection  with  the  purchase-money  mortgage.  Upon  the 
acceptance  by  plaintiffs  of  the  bond  in  suit,  March  13,  1906,  the 
transaction  between  plaintiffs  and  Kellogg  was  completed,  the 
former  executing  and  delivering  their  deed  of  conveyance,  and  the 
latter  a  purchase-money  mortgage.  This  mortgage  contained  none 
of  the  special  provisions  set  out  in  the  contract.  By  its  terms  it  was 
given  to  secure,  not  an  issue  of  $500,000  of  first  mortgage  bonds, 
with  the  incidents  which  according  to  the  provisions  of  the  contract 
were  to  attach  to  such  bonds,  but  to  secure  one  certain  bond  given 
by  Kellogg  in  the  sum  of  $500,000  payable  to  the  plaintiffs'  repre- 
sentative or  his  assigns  on  or  before  March  1,  1916,  with  interest  . 
payable  semiannually.  In  neither  bond  nor  mortgage  is  there  any 
reference  to  the  special  provisions  which  were  to  govern,  nor  does  \' 
either  contain  any  reference  to  the  rights  of  Kellogg.  The  learned!.' 
trial  judge  held  that  this  constituted  a  variance  in  substantial  and  (  .  y 
material  respects  from  what  was  required  by  the  agreement,  and  J 
operated  to  release  the  surety  in  the  bond. 

This  brings  us  to  the  second  contention  of  appellants,  viz.,  that 
the  settlement  of  March  13  involved  no  material  departure  from  the 
contract  of  February  26,  1906.  In  all  essential  particulars  the  ap- 
pellee here  is  an  insurance  company,  and  its  obligation  in  this  par- 
ticular instance  was  that  of  an  insurer.  It  was  paid  for  its  under- 
taking ;  the  amount  of  its  compensation  being  based  on  the  calcula-^ 
tion  of  risk  assumed.  The  trend  of  all  our  modern  decisions,  fed- 
eral and  state,  is  to  distinguish  between  individual  and  corporate/ 
suretyship  where  the  latter  is  an  undertaking  for  money  consideray 


CONSTRUCTION  143 

tion  by  a  company  chartered  for  the  conduct  of  such  business.  In 
the  one  case  the  rule  of  strictissimj  juris  prevails,  as  it  always  has; 
with  respect  to  the  other,  because  it  is  essentially  an  insurance 
against  risk,  underwritten  for  a  money  consideration  by  a  corpora- 
tion adopting  such  business  for  its  own  profit,  the  courts  generally 
hold  that  such  a  company  can  be  relieved  from  its  obligation  for 
suretyship  only  where  a  departure  from  the  contract  is  shown  to  be 
a  material  variance.  "The  doctrine  that  a  surety  is  a  favorite  of  the 
law,  and  that  a  claim  against  him  is  strictissimi  juris  does  not  apply 
where  the  bond  or  undertaking  is  executed  upon  a  consideration 
by  a  corporation  organized  to  make  such  bonds  or  undertakings 
for  profit.  While  such  corporations  may  call  themselves  'surety 
companies,'  their  business  is  in  all  essential  particulars  that  of  in- 
surance. Their  contracts  are  usually  in  the  terms  prescribed  by 
themselves,  and  should  be  construed  most  strictly  in  favor  of  the 
obligee."  32  Cyc,  p.  306,  and  the  authorities  there  cited  in  support. 
Having  regard  to  tins  particular  contract  beforgj^s,  and  interpreting 
it  according  to  its  own  terms,  we  have  said  that  it  is  essentially  a 
contract  of  insurance.  It  follows  that  there  is  but  one  way  by  which 
it  is  to  be  determined  whether  the  variance  complained  of  was  a 
material  variance.  The  test  is  to  be  found  in  the  answer  to  the  ques- 
tion whether  it  substantially  increased  the  chances  of  the  loss  in- 
sured against.  If  such  were  the  result,  it  would  have  been  fair  rea- 
son for  demanding  a  higher  premium  than  was  paid,  and  the  mate-  L 
riality  is  thus  made  apparent.  Hartman  v.  Insurance  Co.,  21  Pa.  466  ; 
Murphy  v.  Insurance  Co.,  205  Pa.  444.  It  is  not  a  question  whether  ; 
the  variance  actually  caused  the  breach  of  the  bond ;  but  whether  it 
was  such  a  variance  as  a  reasonably  careful  and  prudent  person  un- 
dertaking the  risk  would  have  regarded  as  substantially  increasing 
the  chances  of  loss.  To  this,  as  it  seems  to  us,  there  can  be  but  one 
answer.  Under  the  contract  $100,000  of  bonds  of  a  certain  descrip- 
tion were  to  be  available  to  Kellogg  on  completion  of  the  improve- 
ments. These  bonds  were  to  be  secured  by  a  mortgage  on  the  prop- 
erty containing  certain  definite  provisions  as  to  their  redemption ; 
when  issued  they  were  to  be  on  a  parity  with  the  bonds  which  the 
vendors  were  to  receive,  and  were  to  rest  on  the  same  security.    If 

I  the  property  conveyed  had  a  value  of  $400,000 — the  amount  the 
vendors  were  to  receive — it  is  safe  to  assume  that  any  considerable 
expenditure  in  improvements  thereon  as  the  work  progressed  would 
give  to  the  bonds  held  in  reserve  for  Kellogg,  and  which  were  to  be  1 
issued  only  on  completion  of  these  improvements,  a  corresponding 
value  as  an  asset  which  could,  by  way  of  anticipation,  be  made  avail- 
able in  aiding  him  in  the  completion  of  the  work  by  assignment  or 
otherwise.  Would  such  fact  be  likely  to  occur  to  any  one  in  calcu- 
lating the  risk  assumed  in  underwriting  Kellogg's  performance?  If 
so,  here  was  a  material  departure  from  the  contract.   The  settlement 

•as  made  contained  no  provision  for  Kellogg's  bonds;  indeed,  it  pre- 


144  THE    CONTRACT 

eluded  the  possibility  of  their  issue  at  least  on  the  basis  originally 
provided.  It  gave  the  vendors  one  bond  for  $500,000,  $100,000  in 
excess  of  the  price  stipulated  for ;  it  showed  no  interest  in  Kellogg 
in  the  security ;  but  on  the  other  hand  increased  his  liability.  To 
that  extent  it  increased  the  hazard  of  his  accomplishing  what  lie  had 
undertaken  to  do,  and  correspondingly  increased  the  risk  the  appellee 
had  underwritten.  It  is  not  an  answer  to  this  to  say  that  it  was  but 
a  temporary  arrangement ;  that  what  was  contemplated  was  that  the 
improvements  were  to  be  made  by  a  corporation  to  be  issued  by 
such  corporation.  True,  the  contract  contemplated  the  contingency 
of  Kellogg  organizing  a  corporation  to  take  over  the  property  and 
make  the  required  improvements ;  but  the  corporation  was  to  acquire 
the  property  through  a  conveyance  from  Kellogg,  and  the  bonds  to 
be  issued  by  it  were  to  conform  to  the  bonds  previously  provided 
for,  that  is  to  say,  "to  be  a  first  lien  upon  all  its  property  and  assets, 
being  further  secured  by  the  purchase-money  mortgage  already  pro- 
vided for."  The  essential  fact  is  that  the  mortgage  given  by  Kellogg 
was  not  the  mortgage  "already  provided  for,"  and  could  not  be, 
made  to  secure  bonds  with  the  incidents  that  were  to  attach  under 
the  original  contract.  That  the  settlement  was  a  contemplated  tem- 
porary expedient  is  nothing  more  than  a  suggestion ;  but  if  it  were  a 
fact  established  in  the  case,  it  rendered  impracticable  the  original 
scheme.  The  third  position  advanced  by  appellants  is,  that  whatever, 
departure  there  was  from  the  contract  was  with  the  knowledge  and: 
approval  of  the  surety.  It  is  not  pretended  that  the  surety  was  con- 
sulted as  to  the  mortgage  which  was  accepted,  or  had  any  knowl- 
edge as  to  its  contents.  It  was  acquainted  with  the  fact  that  Kellogg 
had  organized  a  corporation  to  make  the  improvements,  but  its 
knowledge  extended  no  further.  It  had  a  right  to  assume  that  not- 
withstanding this  arrangement  the  terms  of  the  original  contract 
would  be  observed,  for  it  was  so  stipulated.  The  case  was  properly 
ruled  by  the  learned  trial  judge. 

The  assignments  of  error  in  this  appeal  are  overruled.    The  judg- 
ment is  affirmed. 

American  Surety  Co.  v.  Pauly,  170  U.  S.  133,  42  L.  ed._977._ 
Harlan,  J. :  If,  looking  at  all  its  provisions,  the  bond  is  fairly  and  reason- 
ably susceptible  of  two  constructions,  one  favorable  to  the  bank  and  the  other 
favorable  to  the  surety  company,  the  former,  if  consistent  with  the  objects 
for  which  the  bond  was  given,  must  be  adopted,  and  this  for  the  reason  that 
:  the  instrument  which  the  court  is  invited  to  interpret  was  drawn  by  the  attor- 
neys, officers,  or  agents  of  the  surety  company.  This  is  a  well-established 
rule  in  the  law  of  insurance.  First  National  Bank  v.  Hartford  F.  Insurance 
Co.,  95  U.  S.  673 ;  Western  Ins.  Co.  v.  Cropper,  32  Pa.  351,  355 ;  Reynolds  v. 
Commerce  Fire  Ins.  Co.,  47  N.  Y.  597,  604;  Travelers'  Ins.  Co.  v.  McConkey, 
127  U.  S.  661,  666;  Fowkes  v.  Manchester  Life  Assur.  &  Loan  Assn.,  3  Best 
&  S.  917,  925.  As  said  by  Lord  St.  Leonards  in  Anderson  v.  Fitzgerald,  4  H. 
L.  Cas.  483,  507,  "It  (a  life  policy)  is  of  course  prepared  by  the  company, 
and  if  therefore  there  should  be  any  ambiguity  in  it,  must  be  taken,  accord- 
ing to  law,  most  strongly  against  the  person  who  prepared  it."    There  is  no 


CONSTRUCTION  145 

sound  reason  why  this  rule  should  not  be  applied  in  the  present  case.  The 
object  of  the  bond  in  suit  was  to  indemnify  or  insure  the  bank  against  loss 
arising  from  any  act  of  fraud  or  dishonesty  on  the  part  of  O'Brien  in  con- 
nection with  his  duties  as  cashier,  or  with  the  duties  to  which  in  the  em- 
ployer's service  he  might  be  subsequently  appointed.  That  object  should  not 
be  defeated  by  any  narrow  interpretation  of  its  provisions,  nor  by  adopting 
a  construction  favorable  to  the  company  if  there  be  another  construction 
equally  admissible  under  the  terms  of  the  instrument  executed  for  the  pro- 
tection of  the  bank. 


SCHOOL  DISTRICT  NO.  1  OF  CLARK  COUNTY,  APPEL- 
LEE, v.  G.  F.  McCURLEY  ET  AL.    (THE  MASSA- 
CHUSETTS BONDING  AND  INSURANCE 
COMPANY),  APPELLANTS 

92  Kans.  53,  142  Pac.  1077,  Ann.  Cas.  1916B,  238  (1914). 

The  opinion  of  the  court  was  delivered  by  Smith,  J. 

This  action  was  brought  by  the  school  district  to  recover  on  the 
bond  of  the  bonding  company  which  insured  the  performance  of 
the  contract  on  the  part  of  McCurley,  the  contractor,  for  the  build- 
ing of  an  addition  to  the  schoolhouse  of  the  appellee  at  Ashland. 

After  various  motions  and  amendments  to  the  pleadings  were 
made  and  ruled  upon,  the  case  was  tried  in  the  district  court  to  a 
jury,  a  motion  for  a  new  trial  made  and  overruled,  and  a  judgment 
rendered  in  favor  of  the  school  district  and  against  the  bunding 
company  for  $2,271.70.  The  bonding  company  appeals.  Many  as- 
signments of  error  are  made,  but  only  four  are  urged  in  argument. 
In  fact  the  appellant  seems  to  argue  all  of  these  assignments  of  error 
together. 

To  save  space  we  will  refer  to  the  contract  between  the  school 
district  and  the  contractor  as  the  building  contract,  and  to  the  bond 
given  by  the  appellant  as  the  insurance  contract.  It  is  urged  that 
one  of  the  provisions  of  the  building  contract  was  that  the  building 
should  be  completed  by  November  15,  1908.  The  bond  provided  that 
no  liability  should  attach  to  the  surety  unless,  in  the  event  of  any? 
default  on  the  part  of  the  principal,  the  appellee  should/immediately, 
upon  knowledge  thereof  and  not  later  than  thirty  days  after  such 
default,  deliver  to  the  bonding  company,  at  its  office  in  Boston,) 
written  notice  thereof. 

It  is  conceded  that  the  building  contract  was  not  completed  No- 
vember 15,  1908,  and  that  no  notice  thereof  was  given  to  the  bond- 
ing company  within  the  time  prescribed.  On  the  part  of  the  appel- 
lant it  is  claimed  that  this  is  a  complete  bar  to  the  appellee's  right 
of  recovery.  On  the  part  of  the  appellee  it  is  contended  that  no  dam- 
age or  loss  is  shown  to  have  occurred  to  appellant  by  reason  of  the  ' 
10— De  Witt. 


146  THE    CONTRACT 

failure  to  give  the  notice,  and  hence  the  failure  to  give  notice  thereof 
constitutes  no  defense  whatever  to  the  action. 

On  the  trial  the  jury  found  that  the  building  was  fully  completed 
February  20,  1909,  about  three  months  after  the  time  specified  in  the 
contract. 

The  appellee,  conceding  the  facts  upon  which  the  contention  is ' 
made,  alleges  that  the  bonding  company  suffered  nothing  by  reason 
of  the  failure  of  notice,  and  this  is  the  principal  question  in  the  case  / 
— whether  the  notice  was  so  far  a  condition  precedent  to  the  right 
of  the  school  district  to  recover  as  to  defeat  its  action,  or  whether, 
if  it  appears  that  the  insurer  was  not  injured  by  lack  of  notice,  it  is 
still  liable  to  pay. 

A  marked  distinction  is  recognized  by  many  of  the  courts  as  to 
the  application  of  the  rule  as  between  contracts  of  an  accommoda- 
tion surety  and  the  contract  of  a  paid  surety.  As  to  the  contracts  of 
an  accommodation  surety,  made  dependent  upon  a  condition  prece- 
dent, the  courts  all  agree  that  the  strict  letter  of  the  contract  will 
be  enforced;  but  as  to  the  contract  of  a  paid  surety,  many  of  the 
courts,  especially  in  the  latter  decisions,  inquire  whether  the  surety 
was  injured  by  the  default  of  the  condition,  and  if  so,  they  enforce 
it  only  to  the  extent  of  the  injury.  In  Hull  v.  Bonding  Co.,  86  Kans. 
342,  it  was  held  that  the  rule  that  sureties  are  favorites  of  the  law 
does  not  apply  to  corporations  engaged  in  the  business  of  furnishing 
bonds  for  profit. 

In  support  of  its  contention  the  appellant  cites  Insurance  Co.  v. 
Thorp,  48  Kans.  239,  in  which  it  was  held  that  the  failure  of  an  in- 
sured to  give  notice  of  the  loss  or  damage  by  fire  within  sixty  days 
after  a  loss  has  occurred,  according  to  the  contract,  debarred  the 
right  of  recovery.  Also,  Insurance  Co.  v.  Russell,  65  Kans.  374, 
which  held  valid  a  stipulation  in  a  fire  insurance  policy  that  the 
policy  should  become  void  if  the  premises  should  become  vacant 
without  the  consent  of  the  company  indorsed  on  the  policy.  Also 
Insurance  Co.  v.  Knerr,  72  Kans.  385,  in  which  it  was  held  that  the 
failure  to  keep  the  books  and  invoices  of  the  insured  securely  locked 
in  a  fire-proof  safe,  as  provided  in  the  policy,  barred  an  action 
thereon.  The  reasons  for  these  decisions,  and  others  of  like  charac- 
ter, are  obvious.  In  the  Thorp  case  the  failure  to  give  the  notice  in- 
terfered with  the  right  of  the  company  to  secure  evidence  of  the 
character  and  extent  of  the  loss.  In  the  Russell  case  the  vacancy 
presumably  increased  the  hazard  of  loss  and  practically  furnished 
a  motive  on  the  part  of  the  insured  to  have  a  fire  occur.  The  case 
of  Fire  Association  v.  Taylor,  76  Kans.  392,  although  containing  an 
expression  which  seems  pertinent  here,  is  not  so  in  fact.  The  ques- 
tion there  was  the  interpretation  of  an  ambiguous  contract.  The 
case  of  the  Y.  M.  C.  A.  v.  Ritter,  90  Kans.  332,  133  Pac.  894,  is  also 
cited  by  the  appellant,  but  a  rehearing  has  been  granted  in  that  case 
and  it  is  still  pending. 


? 


l/V**t 


CONSTRUCTION  147 


Cases,  however,  are  not  wanting  and  some  are  cited,  notably  U.  S. 
Fidelity  &  Guaranty  Co.  v.  Rice,  154  Fed.  206,  and  Knight  &  Jillson 
Co.  v.  Castle,  172  Ind.  97,  which  are  much  like  the  case  at  bar.  In 
[these  cases  it  was  held,  in  substance,  that  the  parties  have  the  right 
by  contract  to  make  such  conditions  precedent  as  they  may  agree 
upon,  and  such  agreements  are  enforceable  in  the  courts. 

There  are,  on  the  other  hand,  numerous  authorities  that  a  surety 
for  hire,  an  insurer  (as  the  appellant  is  in  this  case),  is  not  entitled 
to  the  rule  of  the  strictissimi  juris.  In  Guaranty  Co.  v.  Pressed 
Brick  Co.,  191  U.  S.  416,  it  was  said: 

"The  question  involved  is  whether  the  ordinary  rule  that  exoner- 
ates the  guarantor,  in  case  the  time  fixed  for  the  performance  of  the 
contract  by  the  principal  be  extended,  applies  to  a  bond  of  this  kind 
executed  by  a  guaranty  company,  not  only  for  a  faithful  perform- 
ance of  the  original  contract,  but  for  the  payment  of  the  debts  of 
the  principal  obligor  to  third  parties.  *  *  *  The  rule  of  strictis- 
simi juris  is  a  stringent  one,  and  is  liable  at  times  to  work  a  practical 
injustice.  It  is  one  which  ought  not  to  be  extended  to  contracts  not 
within  reason  of  the  rule,  particularly  when  the  bond  is  underwrit- 
ten by  a  corporation,  which  has  undertaken  for  a  profit  to  insure  the 
obligee  against  a  failure  of  performance  on  the  part  of  the  principal 
obligor."    (Pp.  423,  426.) 

Whatever  may  be  the  rule  elsewhere,  the  latter  rule  is  well  settled 
in  this  state.  (See  Hull  v.  Bonding  Co.,  86  Kans.  342;  Medical  Co. 
v.  Hamm,  89  Kans.  138;  Lumber  Co.  v.  Douglas,  89  Kans.  308;  The 
State  v.  Construction  Co.,  91  Kans.  74.) 

In  Lumber  Co.  v.  Douglas,  supra,  it  was  said : 

"The  law  does  not  have  the  same  solicitude  for  corporations  en- 
gaged in  giving  indemnity  bonds  for  profit  as  it  does  for  the  indiJ 
vidual  surety  who  voluntarily  undertakes  to  answer  for  the  obligaj 
tions  of  another.  Although  calling  themselves  sureties,  such  corpo- 
rations are  in  fact  insurers,  and  in  determining  their  rights  and  lie 
/bilities  the  rules  peculiar  to  suretyship  do  not  apply."  (P.  320.) 
/  It  did  not  appear  that  any  damage  or  loss  was  sustained  by  rea- 
son of  the  failure  to  complete  the  building  within  the  time  specified, 
in  the  contract,  which  the  notice  would  have  enabled  it  to  avoid.  ' 

We  are  unable  to  see  that  the  appellant  was  prejudiced  by  the 
admission  in  evidence  of  the  letters  from  the  attorney  for  appellee 
to  appellant,  or  in  the  instructions  given  to  the  jury.  The  latter  ob- 
jection is  in  effect  that  the  appellee  having  failed  to  comply  with 
the  letter  of  the  bond  in  the  matter  of  notice,  damages  to  appellant 
should  be  presumed  in  the  absence  of  evidence  thereof,  which  claim 
ve  can  not  sustain.  The  breach  of  a  condition  precedent  in  a  bond 
given  by  an  insurer  for  pay  will  not  relieve  the  insurer  from  liability 
for  any  loss  for  which  he  would  otherwise  be  liable  unless  such 
breach  contributed  to  the  loss. 

The  judgment  is  affirmed. 


148  THE    CONTRACT 

West,  J.  (dissenting)  :  While  fully  agreeing  that  bonding  com- 
panies should  be  regarded  as  insurers  and  not  as  sureties,  I  dissent 
from  the  second  paragraph  of  the  syllabus  and  the  corresponding 
portion  of  the  opinion  on  the  ground  that  no  decision  or  number  of 
decisions  can  furnish  any  authority  to  the  court  to  abrogate  a  valid 
contract  between  competent  parties  and  eliminate  therefrom  a  valid 
condition  precedent  which  they  have  placed  therein.  In  this  case  the  , 
parties  contracted  that  no  liability  should  attach  unless  the  specified 
notice  should  be  given ;  it  is  entirely  different  from  a  contract  merely 
to  give  such  notice,  for  in  that  case  a  breach  would  have  to  cause 
damage  before  a  recovery  would  be  authorized.  To  eliminate  such 
condition  precedent  is  to  make  for  the  parties  a  new  and  different 
contract,  which  is  not  a  judicial  task. 

Porter,  J. :   I  concur  in  the  foregoing  dissent. 

See  also  Guarantee  Co.  v.  Mechanics"  Savings  Bank  and  Trust  Co.,  80  Fed. 
766;  Bank  of  Tarboro  v.  Fidelity  &  Deposit  Co.,  128  N.  Car.  366,  38  S.  E.  908, 
83  Am.  St.  682 ;  City  Trust,  Safe  Deposit  &  Surety  Co.  v.  Lee,  204  111.  69,  68 
N.  E.  485 ;  United  States  Fidelity  and  Guaranty  Co.  v.  Golden  Pressed  and 
Fire  Brick  Co.,  191  U.  S.  416,  48  L.  ed.  242. 


KIRSCHBAUM  &  CO.  v.  BLAIR  AND  OTHERS  ^ 

98  Va.  35,  34  5.  E.  895  (1900). 

The  opinion  states  the  case. 

Cardwell,  J.,  delivered  the  opinion  of  the  court. 

This  is  a  writ  of  error  to  a  judgment  of  the  law  and  equity  court 
of  the  city  of  Richmond,  and  the  facts  of  the  case  out  of  which  the 
suit  arises  are  practically  uncontroverted.   They  are  as  follows : 

W.  H.  Weisiger  and  S.  M.  Weisiger,  of  Richmond,  Va.,  styling 
themselves  W.  H.  Weisiger  &  Bro.,  or  jWeisiger  &  Bro.,  as  they  will 
be  spoken  of  in  this  opinion,  entered  into  a  written  contract— with 
A.  B.  Kirschbaum  &  Co.,  wholesale  clothing  merchants  of  the  city 
3  of  Philadelphia,  whereby  WTeisiger  &  Bro.  agreed  to  travel  for  and 
sell  the  clothing  of  Kirschbaum  &  Co.  in  the  states  of  North  Caro- 
lina, Virginia,  part  of  West  Virginia  and  adjacent  territory,  as  di- 
rected by  Kirschbaum  &  Co/;  Kirschbaum  &  Co.  on  their  part  agree- 
ing to  pay  Weisiger  &  Bro.  a  commission  of  eight  per  cent,  on  all 
their  shipped  sales  paid  for  by  customers  and  further  agreeing  to 
pay  Weisiger  &  Bro.,  from  time  to  time,  money  for  traveling  an 
personal  expenses  as  might,  in  Kirschbaum  &  Co.'s  judgment,  b 
warranted  by  accepted  sales  made  by  Weisiger  &  Bro.  All  such  .ad 
varices,  however,  were  to  be  deducted  from  the  commissions  earne 
by  Weisiger  &  Bro.  at  the  time  of  final  settlement,  which,  it  was 
stipulated,  should  be  made  as  nearly  as  possible  at  the  end  of  each 


-   s 

CONSTRUCTION  149 

season,  and  if  Weisiger  &  Bro.  should  not,  by  the  commissions  on 
their  joint  sales,  earn  the  amount  of  money  so  advanced,  then  they 
were  to  be  severally  and  jointly  responsible  for  the  sum  of  money  so 
advanced  and  not  earned  under  the  contract.  Weisiger  &  Bro.  agreed 
to  give  satisfactory  security  in  the  sum  of  $2,000  that  these  advances 
should  be  promptly  returned  to  Kirschbaum  &  Co.  at  any  time  within 
sixty  days  of  their  notification  by  Kirschbaum  &  Co.  of  a  desire  for 
a  settlement.  By  a  subsequent  provision  in  the  contract  Kirschbaum 
&  Co.  reserved  the  right  to  reject  all  or  part  of  any  orders,  at  their 
own  discretion,  that  might  be  sent  in  by  Weisiger  &  Bro.,  and  it 
was  agreed  that  such  rejected  orders,  as  well  as  merchandise  re- 
turned by  customers  and  "failed  accounts,"  should  not  be  considered 
as  sales  under  the  contract,  and  that,  if  commissions  had  been  paid 
on  orders  where  the  goods  were  returned  or  where  the  customers 
afterward  failed,  the  commissions  so  paid  should  be  promptly  re- 
turned to  Kirschbaum  &  Co.  by  Weisiger  &  Bro.,  or  their  sureties. 
It  was  further  provided  that  the  contract  should  remain  in  force  for 
one  year,  commencing  December  1,  1894. 

Pursuant  to  the  contract,  Weisiger  &  Bro.,  in  the  form  of  a  bond, 
bearing  the  same  date  of  the  contract,  namely  November  24,  1894, 
gave  the  security  required,  Lewis  H.  Blair  and  T,  A.  Jacobs  becom- 
ing their  sureties.  The  bond  was  conditioned  for  the  faithful  per- 
formance by  Weisiger  &  Bro.  of  all  the  covenants  and  conditions 
of  the  contract ;  the  contract  being  referred  to  and  made  a  part  of 
the  bond. 

The  contract  having  been  made  and  the  bond  given,  Weisiger  & 
Bro.,  wdio  had  been  furnished  by  Kirschbaum  &  Co.  with  a  line  of 
samples  and  lists  of  prices  of  the  goods  to  be  sold  by  them,  pro- 
ceeded, in  accordance  with  the  contract,  to  travel  and  sell  the  cloth- 
ing of  Kirschbaum  &  Co.  in  the  territory  named,  and  continued  to 
do  so  throughout  the  year  beginning  December  1,  1894.  In  the 
meantime,  however,  Kirschbaum  &  Co.  had  advanced  W'eisiger  & 
Bro.  from  time  to  time  considerable  sums  of  money.  On  October  1, 
1895,  Kirschbaum  &  Co.  gave  Weisiger  &  Bro.  sixty  days'  notice,  as  . 
provided  for  in  the  contract,  that  they  required  a  settlement  of  the  A 
•accounts  between  them,  and  at  the  same  time  gave  the  sureties, 
Blair  and  Jacobs,  like  notice.  After  some  delay,  caused  in  part  by 
the  sudden  death  of  W.  H.  Weisiger,  a  complete  account  of  the 
/  transactions  between  Weisiger  &  Bro.  and  Kirschbaum  &  Co.  was 
made  up  by  the  latter.  The  account  consists  of  two  parts :  First, 
an  itemized  statement  of  the  sums  advanced  by  Kirschbaum  &  Co. 
from  time  to  time  to  Weisiger  &  Bro.  for  traveling  and  personal 
expenses,  or  paid  them  on  account ;  and,  second,  a  statement  of  all 
the  sales  made  by  Weisiger  &  Bvo.,  upon  which  they  were  entitled 
to  eight  per  cent,  commission  under  the  contract,  and  the  balance 
thereby  found  to  be  due  Kirschbaum  &  Co.  was  $1,353.86,  upon 
which  they  claimed  interest  from  January  1,  1896. 


150  THE    CONTRACT 

The  estate  of  W.  H.  Weisiger  being  insolvent,  and  S.  M.  Weisiger 
being  unable  to  pay  the  amount  claimed  by  Kirschbaum  &  Co.  on  the 
account  rendered,  demand  was  made  by  them  on  the  sureties  on  the 
bond  given  by  -Weisiger  &  Bro.  for  the  payment  of  the  balance  of 
$1,353.86,  with  interest  shown  to  be  due  Kirschbaum  &  Co.  by  the 
account,  and  the  sureties,  Blair  and  Jacobs,  refusing  to  pay  this 
balance,  this  suit  was  instituted,  and  at  the  trial  thereof  there  was 
a  verdict  and  judgment  for  the  defendants,  and  the  case  is  before  J 
us  upon  a  writ  of  error. 

It  appears  that  on  November  29,  1894,  Kirschbaum  &  Co.  ad- 
vanced to  Weisiger  &  Bro.  $100,  and  on  the  3d  of  December,  1894, 
$400,  which  amounts  were  used  by  Weisiger  &  Bro.,  it  is  claimed,  i 
in  purchasing  railroad  mileage  books,  and  by  February  11,  1895,1 
their  advancements  to  Weisiger  &  Bro.  aggregated  $1,368,  when  the  / 
gross  sales  made  by  them,  none  of  which  had  been  accepted  by( 
Kirschbaum  &  Co.,  amounted  to  only  $53.50. 

It  further  appears  that  the  total  sales  made  by  Weisiger  &  Bro., 
accepted  by  Kirschbaum  &  Co.,  amounted  to  only  $11,522.25,  upon 
which  they  were  entitled  to  commissions  at  eight  per  cent.,  $921.78, 
while  the  total  advancements  made  to  them  amounted  to  $2,275.64. 

It  was  contended  by  Blair  and  Jacobs,  the  sureties  for  Weisiger \ 
&  Bro.,  that  the  advancements,  or  the  greater  part  of  them,  made!^ 
by  Kirschbaum  &  Co.  to  Weisiger  &  Bro.  were  not  authorized  by  \he.JLP 
terms  of  the  contract  between  the  parties,  and  that  therefore  they;  , 
as  the  sureties  on  the  bond,  were  not  bound  for  the  balance  claimed /p 
by  Kirschbaum  &  Co.  and  sued  for  in  this  action. 

At  the  trial  the  plaintiffs  asked  for  five  instructions,  and  the  de- 
fendants also  asked  for  five  instructions,  all  of  which  were  refused 
except  the  defendants'  first  instruction,  which  is  as  follows : 

"Any  dealings  between  the  principal  debtor  and  the  creditor  which 
varies  the  situation,  right  or  remedies  of  the  surety  after  the  con- 
tract is  made  will  release  him;  and  if  the  jury  believe  from  the  evi- 
dence that  the  plaintiffs  made  a  contract  with  the  Weisigers  which, 
on  its  face,  was  not  to  go  into  force  until  the  1st  of  December,  1894, 
and  which  provided  that  the  money  which  was  to  be  advanced  under 
its  provisions  to  said  Weisigers,  and  for  the  return  of  which,  under 
certain  conditions,  the  defendants  were  to  be  bound  as  sureties,  was 
to  be  advanced  from  time  to  time,  'as  may  in  the  judgment  of  the 
plaintiffs  be  warranted  by  accepted  sales'  made  by  said  Weisigers 
for  said  plaintiffs,  and  that  the  plaintiffs  advanced  money  to  the 
said  Weisigers  before  the  1st  day  of  December,  1894,  and  before 
there  were  any  accepted  sales,  without  the  knowledge  or  consent  of 
said  defendants,  these  facts  operate  as  a  release  of  the  sureties,  ana 
the  jury  should  find  for  the  defendants." 

Plaintiffs'  exceptions  to  the  action  of  the  lower  court  in  giving  the 
above  instruction,  and  in  refusing  the  five  instructions  asked  for  on 


/ 


CONSTRUCTION  151 

their  behalf,  present  the  only  question  that  need  be  considered,  viz. : 
What  is  a  proper  construction  of  the  contract  between  the  parties? 

While,  as  contended  by  counsel  for  plaintiffs  in  error,  the  contract 
of  a  surety  or  guarantor  being  just  as  legal  as  that  of  the  principal, 
there  is  no  good  reason  for  holding  that,  in  arriving  at  the  intention 
of  the  parties,  one  set  of  rules  shall  govern  when  the  principal,  an- 
other when  the  surety  or  guarantor  is  concerned,  that  is  to  say,  that 
a  certain  set  of  words  in  a  contract  mean  one  thing  when  the  prin- 
cipal is  defendant,  and  that  the  same  words  in  the  same  contract 
mean  another  thing  simply  because  the  defendant  is  a  surety  or 
guarantor,  is  absurd,  and  while  the  meaning  of  the  words  is  not  to 
be  affected  by  the  fact  that  the  party  sought  to  be  charged  is  prin- 
cipal, surety  or  guarantor  (Brandt  on  S.  &  G.,  §  94;  Gates  v.  Mc- 
Kee,  13  N.  Y.  232;  Belloni  v.  Freeborn,  63  N.  Y.  388;  Collier  v. 
So.  Ex.  Co.,  32  Gratt.  718),  yet  the  authorities  cited  do  not  stop 
there.  Brandt  on  S.  &  G.,  continuing,  in  section  94,  says :  "On  the 
other  hand,  a  surety  or  guarantor  usually  derives  no  benefit  from  his 
contract.  His  object  generally  is  to  befriend  the  principal.  In  most 
cases  the  consideration  moves  to  the  principal,  and  he  would  be 
liable  upon  an  implied  contract,  while  the  surety  or  guarantor  is 
only  liable  because  he  has  agreed  to  become  so.  He  is  bound  by  his 
agreement,  and  nothing  else.  No  implied  liability  exists  to  charge 
him.  It  has  been  repeatedly  decided  that  he  is  under  no  moral  obli- 
gation to  pay  the  debt  of  his  principal.  Being  bound  by  his  agree- 
ment alone,  and  deriving  no  benefit  from  the  transaction,  it  is  emi- 
nently just  and  proper  that  he  should  be  a  favorite  of  the  law,  and 
have  a  right  to  stand  upon  the  strict  terms  of  his  obligation.  To 
charge  him  beyond  its  terms,  or  to  permit  it  to  be  altered  without 
his  consent,  would  be,  not  to  enforce  the  contract  made  by  him,  but 
to  make  another  for  him." 

It  is  also  well  settled  that,  in  the  construction  of  the  contract  of 
a  surety  or  guarantor,  as  well  as  of  every  other  contract,  the  true 
question  is,  what  was_theJritentioii  of  the  parties  as  disclosed  by 
the  instrument  read  in  the  light  of  the  surrounding  circumstances? 
But  when  the  contract  of  a  guarantor  or  surety  is  duly  ascertained 
and  understood  from  the  written  language  in  which  he  has  con- 
tracted, the  case  must  be  brought  strictly  within  the  guaranty,  and 
the  liability  of  the  surety  can  not  be  extended  by  implication.  His 
liability  is  always  strictissimi  juris,  and  can  not  be  extended  by  con- 
struction. To  the  extent,  and  in  the  manner,  and  under  the  circum- 
stances pointed  out  in  his  obligation,  he  is  bound,  and  no  further. 
The  undertaking  of  the  surety  is  to  receive  a  strict  interpretation,  i 
and  is  not  to  be  extended  beyond  the  fair  scope  of  its  terms.  Mc- 
Clusky  v.  Cromwell,  1  Kernan  598;  Smith  v.  U.  S.,  2  Wall.  237; 
Blanton  v.  Commonwealth,  91  Va.  1 ;  Ayers  v.  Hite,  97  Va.  466,  and 
authorities  cited. 

■ 


152  THE    CONTRACT 

There  would  seem  to  be  some  conflict  between  the  authorities  just 
cited  and  the  authorities  cited  by  counsel  for  the  plaintiffs  in  error 
in  support  of  their  contention  that  the  instrument  in  this  case  is  to 
be  liberally  construed,  but  there  is  really  none.  Mr.  Justice  Story, 
in  Lawrence  v.  McCalmont,  2  How.  426,  does  say:  "We  have  no 
difficulty  whatsoever  in  saying  that  instruments  of  this  sort  (letters 
of  credit)  should  receive  a  liberal  interpretation,"  but,  says  he,  "by 
a  liberal  construction  we  do  not  mean  that  the  words  should  be 
forced  out  of  their  natural  meaning,  but  simply  that  the  words 
should  receive  a  fair  and  reasonable  interpretation,  so  as  to  attain 
the  objects  for  which  the  instrument  is  designed,  and  the  purposes 
to  which  it  is  to  be  applied." 

In  Gates  v.  McKee,  supra,  Denio,  J.,  refers,  with  approval,  to 
Lawrence  v.  McCalmont — quoting  at  length  from  Story,  J. — and  to 
other  authorities,  to  sustain  the  view  that  there  is  no  reason  for 
putting  on  a  guaranty  a  construction  different  from  what  is  put  on 
any  other  instrument;  that  with  regard  to  other  instruments,  the 
rule  is  that  if  the  party  executing  leaves  anything  ambiguous  in  his 
expressions,  such  ambiguity  must  be  taken  most  strongly  against 
himself,  but  he  adds:  "There  is  a  sense,  undoubtedly,  in  which  it 
may  be  said  these  obligations  (of  sureties)  are  to  be  strictly  con- 
strued, and  it  is  this :  That  the  surety  is  not  to  be  held  beyond  the 
very  precise  stipulations  of  his  contract.  But  where  the  question  is 
as  to  the  meaning  of  the  written  language  in  which  he  has  con- 
tracted, there  is  no  difference,  and  there  ought  not  to  be  any,  between 
the  contract  of  a  surety  and  that  of  any  other  party."  To  the  same 
effect  is  the  decision  of  the  court  in  Belloni  v.  Freeborn,  supra,  and 
other  cases  cited  by  plaintiffs  in  error. 

The  writing  may  be  read  in  the  light  of  the  surrounding  circum- 
stances in  order  more  perfectly  to  understand  the  intent  and  meaning 
of  the  parties;  but.  as  they  have  constituted  the  writing  the  only 
outward  and  reliable  expression  of  their  meaning,  no  other  words 
are  to  be  added  to  it,  or  substituted  in  its  stead.  The  duty  of  the 
court  in  such  cases  is  to  ascertain,  not  what  the  parties  may  have 
secretly  intended,  as  contra-distinguished  from  what  their  words 
expressed,  but  the  meaning  of  the  words  they  have  used.  1  Green. 
Ev.,  §  277. 

As  said  by  Mr.  Justice  Strong,  in  Maryland  v.  R.  R.  Co.,  22  Wall. 
113:  "Ordinarily  a  reference  to  what  are  called  'surrounding  cir- 
cumstances' is  allowed  for  the  purpose  of  ascertaining  the  subject- 
matter  of  a  contract,  or  for  an  explanation  of  the  terms  used,  not 
for  the  purpose  of  adding  a  new  and  distinct  undertaking." 

In  the  case  at  bar  the  clause  in  the  contract,  especially  in  dispute, 
reads:  "The  firm  (Kirschbaum  &  Co.)  further  agrees  to  advance 
to  said  W.  H.  Weisiger  &  Bro.  from  time  to  time  money  for  travel- 
ing and  personal  expenses,  as  may  in  their  judgment  be  warranted 
by  his  accepted  sales." 


CONSTRUCTION  153 

Plaintiffs  in  error  accept  as  correct  the  rule  of  law  laid  down  in 
Ex.  Building  &c.  Co.  v.  Bayless,  91  Va.  134;  Blanton  v.  Common- 
wealth, supra ;  Ayers  v.  Hite,  supra,  but  contend  that  when  the  /H 
contract  is  "fairly  and  reasonably  interpreted,  according  to  the  in- 
tent of  the  parties  as  disclosed  by  the  instrument,  read  in  the  light 
of  surrounding  circumstances  and  the  purposes  for  which  it  was 
made,"  they  were  authorized  to  make  the  advances  in  question  with- 
out regard  to  the  "accepted  sales"  made  by  Weisiger  &  Bro.  This"-" 
view  is  the  trend  of  the  instructions  asked  for  by  plaintiffs  in  error 
at  the  trial,  and  refused  by  the  court.  If  that  construction  of  the 
contract  is  to  prevail,  the  undertaking  by  the  bond  was  in  no  way  - 
limited  either  by  the  contract  as  a  whole,  or  the  words :  "The  firm 
further  agrees  to  advance  to  the  said  W.  H.  Weisiger  &  Bro. 
from  time  to  time  money  for  traveling  and  personal  expenses, 
as  may,  in  their  judgment,  be  warranted  by  his  (their,  W.  &  Bro.) 
accepted  sales."  It  is  necessary  to  that  construction  to  strike  out 
the  words  quoted,  or  to  give  them  no  meaning  or  import.  But 
say  plaintiffs  in  error,  they  are  entitled  to  force  and  effect,  and 
left  it  to  their  judgment  to  say  what  advancements  they  might  make 
to  Weisiger  &  Bro.,  and  when,  their  prime  object  being  to  make 
large  sales  and  profits,  and  the  contract  and  security  was  as  to  them 
a  secondary  consideration.  This  may  have  been  the  purpose  and  aim 
of  plaintiffs  in  error,  but  it  is  not,  by  any  reasonable  construction, 
what  the  language  employed  in  the  contract  means.  There  is  noth- 
ing in  the  contract  to  justify  a  broader  liability  on  the  defendants 
in  error,  as  sureties  on  the  bond,  than  for  advances  "warranted  by 
accepted  sales" — warranted,  or  justified,  in  the  judgment  of  plain- 
tiffs in  error,  fairly  and  honestly  exercised,  as  defendants  in  error 
had  a  right  to  rely,  by  "accepted  sales ;"  all  such  advances  to  be  de- 
ducted from  the  commissions  earned  by  Weisiger  &  Bro.,  at  the 
time  of  final  settlement ;  and  if  not  earned  by  them  on  their  joint 
sales,  they  were  to  be  jointly  and  severally  bound  for  the  sums  so 
advanced,  as  well  as  for  commissions  which  had  been  paid  to  them 
upon  sales  of  goods  returned  to  plaintiffs  in  error,  and  Weisiger  & 
Bro.,  or  their  sureties,  defendants  in  error,  were  to  repay  such  ad- 
vancements and  commissions. 

We  do  not  say,  and  do  not  mean  to  say,  that  plaintiffs  in  error 
were  not  authorized  to  advance  to  Weisiger  &  Bro.,  under  the  con- 
tract, any  sum  or  sums  of  money  beyond  the  commissions  on  their 
"accepted  sales,"  but  we  do  say  that  plaintiffs  in  error  were  not 
authorized  to  make  any  advances  to  Weisiger  &  Bro.  not  "war- 
ranted," in  the  judgment  of  the  plaintiffs  in  error,  by  "accepted 
sales"  made  by  Weisiger  &  Bro.  Indeed  this  seems  to  have  been 
the  view  taken  by  them  when  they  wrote  to  W.  H.  Weisiger,  March 
9,  1895:  "You  (Weisiger)  know  you  have  drawn  at  least  $1,000 
more  than  what  you  are  entitled  to  according  to  your  sales,"  and 
they  also  admit  in  the  same  letter  that  they  had  already  been  ad- 


154  THE    CONTRACT 

vancing  money  to  Weisiger  &  Bro.  for  "private  purposes,"  and  were 
not  authorized  to  make  any  advances  except  for  "business  pur- 
poses." Why  refer  in  that  letter  to  the  restrictions  upon  the  right 
of  Weisiger  &  Bro.  to  draw  advancements,  if  they  had  the  right  to 
ask,  and  plaintiffs  in  error  the  right  to  make  advancements,  regard- 
less of  the  sales  made  by  Weisiger  &  Bro.  ?  Why  put  the  clause  in 
the  contract  if  it  was  only  to  serve  the  purpose  of  reserving  the 
right  to  plaintiffs  in  error  to  exercise  their  judgment  as  to  what  ad- 
vances they  would  make  to  Weisiger  &  Bro.,  and  when?  They  had 
that  right  already  without  such  a  stipulation. 

Plaintiffs  in  error  were  wholesale  merchants,  widely  known,  con- 
ducting a  very  large  business,  extending  over  many  states,  and  it 
was  reasonable  for  defendants  in  error  to  rely,  and  doubtless  they 
did  rely,  for  their  protection,  as  sureties  for  Weisiger  &  Bro.,  upon 
the  restriction  in  the  contract  of  advancements  to  the  latter  to  such 
as  would  be  "warranted,"  in  the  judgment  of  plaintiffs  in  error, 
fairly  and  honestly  exercised,  by  "accepted  sales,"  made  by  Weisiger 
&  Bro.  There  is  nothing  in  the  contract,  as  plaintiffs  in  error  seem 
to  contend  was  their  situation,  to  have  led  defendants  in  error  to 
the  belief  that  Weisiger  &  Bro.  were  in  straitened  circumstances, 
and  unable  to  work  without  considerable  advances  from  plaintiffs 
in  error.  On  the  contrary,  the  language  of  the  contract  was  weTh 
calculated  to  justify  the  belief,  as  testified  to  by  one  of  the  defend- 
ants in  error,  that  Weisiger  &  Bro.  had  sufficient  money  to  travel  j 
and  sell  goods  for  plaintiffs  in  error  until  there  were  "accepted  ( 
sales."  We  agree  with  counsel  for  defendants  in  error  that  it  is^ 
a  very  different  thing  to  become  surety  for  the  return  of  advances 
by  a  man  circumstanced  as  plaintiffs  in  error  claim  their  agents 
(W.  &  B.)  were — unable  even  to  begin  their  work  without  receiving 
large  advances — and  to  become  surety  for  one  situated  as  the  sureties 
here  had  the  right  to  believe  from  the  contract  Weisiger  &  Bro. 
were,  to  wit :  Possesssed  of  enough  means  to  carry  on  the  business 
until  there  were  "accepted  sales"  sufficient  to  justify  advances. 

In  Blanton  v.  Commonwealth,  supra,  Keith,  P.,  says :  "The  cor- 
rect rule,  says  the  Supreme  Court  of  the  United  States  (2  Wall. 
supra)  is  that  any  variation  in  the  agreement  to  which  the  surety  has 
subscribed,  which  was  made  without  the  surety's  knowledge  or  con- 
sent, and  which  may  prejudice  him,  or  which  may  amount  to  a  sub- 
stitution of  a  new  agreement  for  the  one  subscribed,  will  discharge 
the  surety." 

In  that  case  the  sureties  subscribed  to  a  bond  duly  accepted  by  the 
county  court  of  Amelia  county,  in  which  their  liability  was  divided 
among  eight,  while  the  attempt  was  made  to  enforce  a  liability  upon 
a  bond  in  which  there  were  but  seven  obligors,  and  it  was  held  that 
the  sureties  were  not  bound.  See  also  Calvert  v.  London  Dock 
Co.,  2  Keen  639;  Mayhew  v.  Boyd,  5  Md.  110;  Bragg  v.  Shain,  49 
Cal.  131 ;  Simonson  v.  Grant,  36  Minn.  439. 


ftSxA. 


IA 


CONSTRUCTION  155 

The  question  in  the  last  case  was  whether  or  not  the  sureties 
upon  a  bond  for  the  faithful  performance  of  the  provisions  of  a 
builder's  contract  were  discharged  by  the  owner  of  the  house  making 
payments  to  the  builder  at  times  before  they  were  due  under  the 
contract.  The  grounds  upon  which  the  court  held  the  sureties  dis- 
charged were  that,  after  the  work  was  commenced,  and  the  first  in- 
stalment of  the  contract  price  paid,  and  before  the  building  ma- 
terials were  furnished  by  the  contractors,  the  owner  of  the  house  so 
far  departed  from  the  terms  of  the  contract  that  payments  were 
made  by  him  to  divers  persons  on  the  order  of  the  contractors,  with- 
out reference  to  the  state  of  the  work  or  the  terms  of  the  contract, 
and  in  some  instances  to  an  amount  exceeding  the  instalments  due, 
as  stipulated  therein,  and  in  anticipation  thereof. 

In  this  case,  with  a  provision  in  the  contract  authorizing  advances    . 
[to  Weisiger  &  Bro.,  when  "warranted"  by  their  "accepted  sales,"// 
plaintiffs  in  error  not  only  seek  to  enforce  a  liability  on  defendants 
in  error  for  large  advances  to  their  principals,  for  private  as  well  as    . 
business  purposes,  before  they  were  "accepted  sales" — advances  be- 
fore there  were  any  sales  at  all — but  also  an  advance  before  the 
contract  went  into  effect.    To  enforce  this  demand  it  would  have  to 
be  held  that  a  surety  was  bound  for  what  his  principal  was  bound,   , 
although  it  is  conceded  that  his  liability  is  strictissimi  juris,  and  that 
to  the   extent,   and   in   the   manner,   and   under   the   circumstances 
pointed  out  in  his  obligation,  he  is  bound,  and  no  further. 

We  are  of  opinion  that  the  court  below  did  not  err  in  refusing  the 
instructions  asked  by  plaintiffs  in  error  and  giving  the  instructions 
set  out  above.  Nor  did  the  court  err  in  refusing  the  instructions 
asked  by  plaintiffs  in  error  and  giving  the  instructions  set  out  above. 
Nor  did  the  court  err  in  refusing  plaintiffs  in  error  a  new  trial. 
Therefore  its  Judgment  is  affirmed. 

Affirmed. 

Keith,  P.,  and  Riely,  J.,  dissent. 


I  AMES  B.  BRADSHAW  AND  ANOTHER  v.  L.  ELDRIDGE  » 

BARBER 


125  Minn.  479,  147  N.  IV.  650  (1914). 


Philip  E.  Brown,  J. :  Action  to  recover  upon  a  continuing  guar- 
anty. Plaintiffs  had  a  verdict,  which,  on  defendant's  motion,  was 
vacated  and  judgment  ordered  for  defendant  notwithstanding. 
Plaintiffs  appealed  from  a  judgment  entered  accordingly. 

The  facts  are  undisputed.  In  1910  defendant's  sister,  Miss  Bar- 
ber, contemplated  engaging  in  the  millinery  business  at  Bridge- 
water,  South  Dakota,  and  sought  to  purchase  stock  therefor  from 


156  THE    CONTRACT 

plaintiffs.    In  order  that  she  might  obtain  credit,  defendant  executed 
the  following  instrument,  addressed  to  plaintiffs : 

"In  consideration  of  your  furnishing  to  Miss  Lottie  J.  Barber, 
of  Bridgewater,   S.  D.,  goods  as  desired  by  her  for  four  months 
from  date  and  to  the  amount  of  two  hundred  dollars    ($200.00) ,  ■ 
and  such  additional  goods  as  she  may  desire  within  said  period,  or  k 
from  time  to  time  thereafter,  I  hereby  agree  to  be  liable  for  the 
same,  and  extensions  of  time  of  payment  may  be  granted  by  you. 
without  releasing  me  from  such  liability.     Notice  of  acceptance  of  \ 
this  guaranty  and  default  in  payment  is  hereby  expressly  waived."  » 

Plaintiffs  duly  notified  defendant  of  acceptance  of  the  guaranty, 
and  between  its  date,  March  7,  1910,  and  June,  1912,  Miss  Barber 
conducted  such  business  at  Bridgewater,  purchasing  goods  from 
plaintiff  on  credit  and  making  payments  on  account  from  time  to 
time.  During  the  month  last  mentioned  she  disposed  of  the  busi- 
ness, of  which  plaintiffs  were  advised,  being  then  indebted  to  them 
in  the  sum  of  $37.27.  Later  she  again  engaged  in  business  of  the 
same  kind  at  Two  Harbors,  Minn.,  continuing  to  purchase  goods  on 
credit  from  plaintiffs,  until  October,  1912,  when  she  again  went  outi  . 
of  business.  She  remitted  from  Two  Harbors  only  $150.00,  which 
plaintiffs  first  applied  in  payment  of  the  $37.27  balance,  leaving! 
due  them,  for  goods  purchased  by  her  for  the  Two  Harbors  busi- 
ness, the  sum  of  $555.51,  for  which  amount  defendant  is  sought  to 
be  charged  as  guarantor. 

Defendant  urges  several  grounds  in  support  of  the  court's  action,' 
among  them  that  the  guaranty,  being  given  to  pay  for  goods  pur-j 
..chased  for  the  Bridgewater  business,  [he  can  not  be  held  for  any 
purchases  made  from  Two  Harbors  •  jwh~ich  presents  the  only  ques- 
tion necessary  to  determine.  Considering  the  guaranty  literally, 
this  contention  could  not  be  sustained;  for,  if  its  wording  alone  is 
controlling,  defendant  must  be  deemed  to  have  bound  himself  to  pay 
for  all  goods  of  all  kinds  which  his  sister  might  purchase  from 
plaintiffs,  without  limitation  as  to  time  or  place.  Such  broad_  in^ 
terpretation  is  inadmissible ;  for  this  court  has  held  that  a  guaranty 
without  limitation  in  terms  as  to  time  or  amount  can  not  be  un- 
reasonably extended  as  to  either,  and  each  must  be  reasonable  under 
all  circumstances  of  the  case.  Lehigh  Coal  &  Iron  Co.  v.  Scallen, 
61  Minn.  63.  Should  the  same  rule  be  applied  as  to  place?  This 
question  depends  upon  the  applicable  rule  of  construction.  It 
should  be  remembered  that  contracts  of  this  kind  are  in  general 
use  in  mercantile  transactions  and  that  they  facilitate  business  in 
many  ways,  among  other  things  often  aiding  persons  to  engage  in 
profitable  enterprises  which,  from  lack  of  credit,  they  would  other- 
wise be  unable  to  undertake.  Failure  to  bear  these  characteristics 
in  mind  and  the  close  relation  between  guaranty  and  suretyship 
on  the  one  hand,  and  an  exaggeration  of  the  rights  of  creditors  on 
the  other,  have  led  to  the  promulgation  of  antagonistic  rules,  one 


CONSTRUCTION  157  '"■  . 

calling  for  strict  and  the  other  for  liberal  construction  of  the  guar- 
antor's undertaking.  The  true  rule,  however,  and  the  one  sustained 
by  what  appeals  to  us  as  the  better  considered  authorities,  lies  be- 
tween these  two,  and  is  that[a  mercantile  credit  guaranty  should  be 
neither  extended  beyond  the  fair  import  of  its  terms  nor  unduly 
restricted  by  technical  interpretation.  This  rule  is  well  stated  in 
Hooper  v.  Hooper,  81  Md.  155. 

"A  guaranty,"  said  Mr.  Justice  McSherry  at  page  169,  "is  a  mer- 
cantile instrument  to  be  construed  according  to  what  is  fairly  to  be 
presumed  to  have  been  the  understanding  of  the  parties,  without 
any  strict  technical  accuracy,  but  in  furtherance  of  its  spirit  and 
liberally  to  promote  the  use  and  convenience  of  commercial  in- 
tercourse. It  should  be  given  that  effect  which  will  best  accord 
with  the  intention  of  the  parties  as  manifested  by  the  terms  of  the 
guaranty,  taken  in  connection  with  the  subject-matter  to  which  it 
relates,  and  neither  enlarging  the  words  beyond  their  natural  import 
in  favor  of  creditor,  nor  restricting  them  in  aid  of  the  surety.  The 
circumstances  accompanying  the  whole  transaction  may  be  looked  to 
in  ascertaining  the  understanding  of  the  parties." 

Again,  in  London  &  San  Francisco  Bank  v.  Parrott,  125  Cal.  472, 
the  rule  is  clearly  propounded,  at  pages  481  and  482,  as  follows : 

"When  it  is  said  that  a  guarantor  is  entitled  to  stand  upon  the 
strict  terms  of  his  guaranty,  nothing  more  is  intended  than  that  he 
is  not  to  be  held  liable  for  anything  that  is  not  within  the  express 
terms  of  the  instrument  in  which  his  guaranty  is  contained ;  that  his 
liability  is  not  to  be  extended  by  implication  beyond  these  limits,  or 
to  other  objects  than  those  expressed  in  the  instrument  of  guaranty. 
But  for  the  purpose  of  ascertaining  the  meaning  of  the  language 
which  he  has  used,  and  thus  determining  the  extent  of  his  guaranty, 
the  same  rules  of  construction  are  to  be  applied  as  are  applied  in  the 
construction  of  other  instruments.  His  liability  is  not  to  be  ex- 
tended by  implication  beyond  the  terms  of  his  guaranty  as  thus  as- 
certained. The  language  used  by  him  is,  however,  to  receive  a  fair 
and  reasonable  interpretation  for  the  purpose  of  effecting  the  ob- 
jects for  which  he  made  the  instrument,  and  the  purpose  to  which 
it  was  to  be  applied." 

See  105  Am.  St.  520,  note.  See  also  Fall  v.  Youmans,  67  Minn. 
S3,  where  Mr.  Justice  Mitchell  said,  with  reference  to  a  guaranty  of 
collection  of  a  note : 

"The  guaranty  must  be  interpreted  in  reference  to  the  situation 
and  condition  of  the  maker  of  the  note,  actual  or  rightfully  assumed, 
at  the  time  the  guaranty  was  made." 

And,  for  an  illustrative  case  indicating  how  far  the  courts  have 
gone  in  this  connection,  see  John  H.  Lyon  &  Co.  v.  Plum,  75  N.  J. 
L.  883. 

The  ruling  of  this  court  in  Lehigh  Coal  &  Iron  Co.  v.  Scallen, 
supra,  was  merely  an  application  of  the  rule  of  construction  above 


158  THE    CONTRACT 

stated  in  determining  the  scope  of  the  guaranty  with  reference  to 
time  and  amount,  and  we  can  conceive  of  no  reason  why  the  same 
rule  should  not  be  applied  in  determining  the  question  as  to  limita- 
tion of  place.  The  true  inquiry  in  each  case  is:  What  may  fairly  ', 
ibe  said  to  have  been  contemplated  by  the  parties  when  the  instru- 
ment was  executed,  giving  due  effect  to  every  part  and  also  having 
proper  regard  for  surrounding  circumstances?  The  answer  to  this 
inquiry  in  the  present,  case  is,  clearly,  that  neither  of  the  parties 
contemplated,  when  the  guaranty  was  executed,  that  Miss  Barber  , 
would  engage  in  business  in  Minnesota ;  for  her  change  of  location 
resulted  wholly  from  causes  arising  long  thereafter.  Hence,  not- 
withstanding the  general  language  used,  we  hold,  following  the  rules 
stated,  that  defendant  was  not  bound  to  respond  for  purchases  made 


while   Miss  Barber  was  in  business  at  Two  Harbors.    Otherwise 
it  would  follow  that,  no  matter  where  she  might  subsequently  have 


located  in  business,  defendant  would  still  have  remained  liable.  He' 
might  well  have  been  willing  to  guarantee  her  purchases  while  she 
was  doing  business  at  Bridgewater,  and  yet  have  refused  to  bind 
himself  with  reference  to  another  location,  had  such  been  under  con- 
sideration. In  the  nature  of  things  such  a  change  of  location  could 
not  be  made  without  materially  affecting  the  risk,  thus  constituting 
a  departure  from  the  original  engagement  of  the  parties.  If,  there- 
fore, the  guarantor  be  held  bound  without  subsequent  consent,  which 
does  not  here  appear,  it  would  have  to  be  by  virtue  of  a  contract  L-y  J 
upon  the  terms  of  which  the  minds  of  the  parties  never  met.  Prima.7  jLkz4 
facie,  a  guaranty  of  the  kind  under  consideration  is  essentially  logaij  ' 

The  conclusion  reached  amounts  merely  to  an  extension  of  our 
prior  holdings  as  to  time  and  amount  by  applying  the  principle 
underlying  them  to  the  correlated  element  of  place.  And,  while 
there  is  dearth  of  authority  specifically  in  point,  our  determination 
is  not  unsupported  by  closely  analogous  cases.  See  Wheeler  & 
Wilson  Mfg.  Co.  v.  Brown,  65  Wis.  99;  Johnson  v.  Brown,  51  Ga. 
498;  Singer  Mfg.  Co.  v.  Armstrong,  7  Kan.  App.  314;  Rouss  v. 
King,  74  S.  C.  251,  trends  to  the  contrary. 

Judgment  affirmed. 

See  also  Smith  v.  Molleson,  148  N.  Y.  241,  42  N.  E.  669. 

"In  harmonizing  apparently  conflicting  clauses  of  the  contract  they  must  be 
construed  so  as  to  give  effect  to  the  intention  of  the  parties  as  gathered  from  ; 
the  whole  instrument,  and  where  the  object  to  be  accomplished  is  declared  inj 
the  instrument  the  clause  which  contributes  most  essentially  to  that  objec 
will  control."   Mills-Carleton  Co.  v.  Huberty,  84  Ohio  St.  81,  95  Nr-E.^383. 


1      \s- 

y 

CHAPTER  II 

THE    STATUTE   OF   FRAUDS 

SECTION  1.    THE  ENGLISH  STATUTE 

29  Car.  2,  C.  3,  S.  4  (1677). 

*'No  action  shall  be  brought  whereby  to  charge  the  defendant 
upon  any  special  promise  to  answer  for  the  debt,  default  or  miscar- 
riages of  another  person ;  unless  the  agreement  upon  which  action  v 
ska4L£e  brought,  or  some  memorandum  or  note  thereof,  shall  be  in 
writing,  and  signed  by  the  party  to  be  charged  therewith,  or  some 
person  thereunto  by  him  lawfully  authorized." 

Note:  For  form  and  contents  of  the  memorandum  sufficient  to  comply  with 
the  statute,  see  Williams  v.  Lake,  2  Ell.  &  Ell.  349 ;  Palmer  v.  Baker,  23  Up. 
Can.  302;  Holmes  v.  Mitchell,  7  C.  B.  (X.  S.)  361;  Lightbound  v.  Warnock, 
4  Ont.  187;  Dodge  v.  Lean,  13  Johns.  (N.  Y.)  508;  Kling  v.  Bordner,  65  Ohio 
St.  86,  61  N.  E.  148;  Moore  v.  Eisaman,  201  Pa.  190,  50  Atl.  982;  McManus 
v.  Boston,  171  Mass.  152,  50  N.  E.  607;  Lamkin  v.  Baldwin  &  Lamkin  Mfg. 
Co.,  72  Conn.  57,  43  Atl.  593,  1042,  44  L.  R.  A.  786. 

The  word  "agreement"  as  used  in  the  statute  has  been  construed  as  em- 
bracing riOt  only  the  general  terms  of  the  bargain,  but  also  the  consideration  [ 
for  thepromise.  This  was  the  construction  placed  upon  it  in  the  case  of 
Wain  v.  Warlters,  5  East  10,  decided  in  1804.  The  court  held  that  the  words 
"promise"  and  "agreement"  did  not  mean  the  same  thing  and  that  to  satisfy 
the  statute  not  only  must  the  "promise"  of  the  guarantor  be  in  writing,  but 
the  whole  "agreement,"  including  the  consideration  for  the  "promise,"  must 
also  be  in  writing.  This  decision  established  the  rule  in  England  until  1856, 
when  by  the  enactment  of  the  Mercantile  Law  Amendment  it  became  unnec- 
essary to  express  the  consideration  in  writing. 

In  America  the  courts  have  not  generally  followed  the  rule  announced  in 
Wrain  v.  Warlters,  although  the  legislatures  of  Alabama,  Minnesota,  Nevada, 
Oregon  and  Wisconsin  have  enacted  statutes  which  require  the  consideration 
to  be  expressed  in  writing. 

For  cases  contra  to  Wain  v.  Warlters,  see  Packard  v.  Richardson,  17  Mass. 
122,  9  Am.  Dec.  123 ;  Sage  v.  Wilcox,  6  Conn.  81 ;  Dorman  v.  Bigelow,  1  Fla. 
281 ;  Gillighan  v.  Boardman,  29  Maine  79 ;  Halsa  v.  Halsa,  8  Mo.  303 ;  Reed 
v.  Evans,  17  Ohio  128 ;  Moore  v.  Eisaman,  201  Pa.  190,  50  Atl.  982  ;  Britton 
v.  Angier,  48  N.  H.  420;  Drake  v.  Seaman,  97  N.  Y.  230;  Patchin  v.  Swift,  21 
Vt.  292. 

SECTION  2.    PROMISE  MADE  TO  THE  DEBTOR 

EASTWOOD  v.  KENYON  y 

11  Ad.  &  El.  438  (1840). 

Lord  Den  man,  C.  J.:  The  first  point  in  this  case  arose  on  the 
fourth  section  of  the  statute  of  frauds,  viz.,  whether  the  promise  of 
the  defendant  was  to  'Answer  for  the  debt,  default,  or  miscarriage 
of  another  person." 

159 


160  THE    STATUTE   OF   FRAUDS 

The  facts  were  that  the  plaintiff  was  liable  to  a  Mr.  Blackburn 
on  a  promissory  note ;  and  the  defendant,  for  a  consideration,  which 
may  for  the  purpose  of  the  argument  be  taken  to  have  been  suffi- 
cient, promised  the  plaintiff  to  pay  and  discharge  the  note  to  Black- 
burn.    If  the  promise  had  been  made  to  Blackburn,  doubtless  the 
statute  would  have  applied ;  it  would  then  have  been  strictly  a  prom- 
ise to  answer  for  the  debt  of  another;  and  the  argument  on  the 
part  of  the  defendant  is,  that  it  is  not  less  the  debt  of  another  be- 
cause the  promise  is  made  to  that  other,  viz.,  the  debtor,  and  not 
to  the  creditor,  the  statute  not  having  in  terms  stated  to  whom  the 
promise  contemplated  by  it  is  to  be  made.     But  upon  consideration 
.  we  are  of  opinion  that^  the  statute  applies  only  to  promises  made  to 
•the  person  to  whom  another  is  answerable.  |We  are  not  aware  of 
'any  case  in  which  the  point  has  arisen,  or  in  which  any  attempt  has 
been  made  to  put  that  construction  upon  the  statute  which  is  now 
sought  to  be  established,  and  which  we  think  not  to  be  the  true  one. 
Rule  to  enter  verdict  for  defendant  discharged. 

Accord :   Hargreaves  v.  Parsons,  13  M.  &  W.  561. 



PELEG  ALDRICH  v.  PHILANDER  AMES 
9  Gray  (Mass.)  76  (1857). 

Shaw,  C.  J.:  The  case  in  substance  is,  that  the  plaintiff,  at  the 
request  of  the  defendant,  and  for  a  valuable  consideration,  became 
bail  for  John  A.  Crehore,  upon  which  the  defendant  promised  the 
plaintiff  to  indemnify  and  save  him  harmless  J 

The  ground  of  defense  is,  that  this  was  an  alleged  promise  of  the  /V? 
defendant  to  pay  the  debt  of  another,  and  therefore  that  the  action/  r 
can  not  be  maintained  without  an  agreement  in  writing,  because  it/  ' 
is  within  the  statute  of  frauds. 

The  court  is  of  the  opinion  that  this  ground  is  wholly  untenable. 
This  is  a  promise  by  the  defendant  to  another,  to  pay  his  debt,  or, 
in  other  words,  to  save  him  from  the  performance  of  an  obligation 
which  might  result  in  a  debt.  But  it  is  a  promise  to  the  debtor  to 
pay  his  debt,  and  thereby  to  relieve  him  from  the  payment  of  it  him- 
self, which  is  not  within  the  statute  of  frauds. 

The  theory  of  the  statute  of  frauds  is  this,  that  when  a  third 
party  promises  the  creditor  to  pay  him  a  debt  due  to  him  from  a 
person  named,  the  effect  of  such  a  promise  is  to  become  a  surety  or 
guarantor  only,  and  shall  be  manifested  by  written  evidence.  The 
promise  in  such  case  is  to  the  creditor,  not  to  the  debtor.  For  in- 
stance, if  A,  a  debtor,  owes  a  debt  to  B,  and  C  promises  B,  the  cred- 
itor, to  pay  it,  that  is  a  promise  to  the  creditor  to  pay  the  debt  of  A. 
But  in  the  same  case,  should  C,  on  good  consideration,  promise  A, 


PROMISE    OF    INDEMNITY  161 


the  debtor,  to  pay  the  debt  to  B  and  indemnify  A  from  the  payment, 
although  one  of  the  results  is  to  pay  the  debt  to  B,  yet  it  is  not  a 
promise  to  the  creditor  to  pay  the  debt  of  another,  but  a  promise  to 
the  debtor  to  pay  his  debLJ^-^ 

This  rule  appears  to  us  to  be  well  settled  as  the  true  construction 
of  the  statute,  well  confirmed  by  authorities.  Eastwood  v.  Kenyon, 
11  Ad.  &  El.  438,  and  3  P.  &  Da  v.  276;  Harrison  v.  Sawtel,  10 
Johns.  242 ;  Chapin  v.  Merrill,  4  Wend.  657 ;  Chapin  v.  Lapham,  20 
Pick.  467;  Alger  v.  Scoville,  1  Gray  395. 

Exceptions  overruled. 

Accord:  Moore  v.  First  Nat.  Bank,  139  Ala.  595,  36  So.  777;  Windell  v. 
Hudson,  102  Ind.  521,  2  N.  E.  303 ;  Patton  v.  Mills,  21  Kans.  163 ;  Green  v. 
Brookins,  23  Mich.  48,  9  Am.  Rep.  74 ;  Ware  v.  Allen,  64  Miss.  545,  1  So.  738, 
60  Am.  Rep.  67 ;  Brown  v.  Brown,  47  Mo.  130,  4  Am.  Rep.  320 ;  Wood  v.  Mo- 
riarity,  15  R.  I.  518,  9  Atl.  427. 


U*X^VV^vwis| 


SECTION  3.   PROMISE  OF  INDEMNITY 

W.  THOMAS  v.  WILLIAM  COOK 

8  Barnczvall  &  Creswell  728  (1828) 

Assumpsit.  The  declaration  stated  that  on,  etc.,  a  certain  partner- 
ship in  trade  between  one  W.  Cook,  since  deceased,  and  one  N.  D. 
Morris,  was  dissolved ;  that  it  was  agreed  between  W.  Cook,  since 
deceased,  and  Morris,  that  the  former  should  take  upon  himself  the 
payment  of  certain  debts  (specified  in  the  declaration)  ;  and  that  it 
was  also  agreed  that  a  bond  of  indemnity,  executed  by  W.  Cook, 
since  deceased,  and  two  other  persons,  should  be  given  to  Morris, 
to  save  himself  harmless  from  the  payment  of  the  said  debts.  And 
thereupon,  afterward,  to  wit,  on,  etc2  in  consideration  that  the 
plaintiff,  at  the  request  of  the  defendant,  would,  together  with  the 
defendant  and  W.  Cook,  since  deceased,  execute  a  bond  of  indem- 
nity to  Morris  in  the  sum  of  £4,100  conditioned  to  save  him  harm- 
less from  the  said  debts ;  the  defendant  undertook  and  promised  the 
plaintiff  that  he,  the  defendant,  would  save  harmless  and  indemnify 
him  from  all  payments,  damages,  costs,  and  expenses  which  he 
(plaintiff)  should  or  might  incur,  bear,  pay,  sustain,  or  be  put  unto 
by  reason  or  means  of  his  so  executing  the  said  writing  obligatory. 
Averment  that  plaintiff  was  afterward  compelled  to  pay  on  account 
of  the  said  debts  the  sum  of  £360,  and  that  defendant  had  not  in- 
demnified him.  The  second  and  third  counts  were  in  substance  the 
same.  The  fourth  count  alleged  that  in  consideration  that  the  plain- 
tiff, at  the  request  of  the  defendant,  would,  as  surety  for  W. 
Cook,  since  deceased,  together  with  the  said  W.  Cook  and  the  de- 
ll— De  Witt. 


162  THE  STATUTE  OF  FRAUDS 

fendant,  make  and  draw  a  certain  bill  of  exchange  for  £500  upon 
certain  persons  (named),  and  would  indorse  and  deliver  the  sa  -ie 
to  M orris,  in  order  that  he  might  negotiate  the  same  for  his  own 
use,  the  defendant  undertook  to  indemnify  the  plaintiff  from  any 
loss  or  damage  by  reason  of  his  drawing  and  indorsing  the  bill. 
Averment  that  plaintiff  did  draw  and  indorse  the  bill  in  manner 
aforesaid,  and  was  afterward  by  reason  thereof  compelled  to  pay  it, 
whereof  the  defendant  had  notice,  but  did  not  indemnify  him. 
Counts  for  money  lent,  paid,  had,  and  received,  and  on  an  account 
stated.  Plea,  the  general  issue.  At  the  trial  before  Park,  J.,  at  the 
Hereford  Lent  assizes,  1828,  it  appeared  that  the  plaintiff  and  de- 
fendant had  executed  the  bond,  and  drawn  the  bill  mentioned  in 
the  declaration ;  that  the  defendant  had  requested  the  plaintiff  to  do 
so,  and  promised  that  he  should  not  be  a  loser.  It  was  also  proved, 
that  on  account  of  payments  made  by  the  plaintiff  toward  the  debts 
specified,  and  the  bill  of  exchange,  a  sum  of  £400  remained  due  to 
him  in  1825.  After  this  time  the  plaintiff  received  from  the  estate 
of  W.  Cook,  since  deceased,  £100,  leaving  a  deficiency  of  £300.  For 
the  defendant  it  was  contended  that  the  plaintiff  could  not  recover 
on  the  special  counts  for  want  of  a  written  agreement,  the  promise 
there  laid  being  to  answer  for  the  debt  of  a  third  person,  and  con- 
sequently that  he  could  only  recover  against  the  defendant  as  co- 
surety on  the  count  for  money  paid,  one  moiety  of  the  £300.  The 
learned  judge  directed  the  jury  to  find  a  verdict  for  the  plaintiff  for 
£300,  and  gave  the  defendant  leave  to  move  to  reduce  it  to  £150.  A 
rule  nisi  for  that  purpose  was  obtained  in  Easter  Term,  against 
•  which  Taunton  and  Chilton  now  showed  cause. 

Bayley,  J. :  It  is  provided  by  the  fourth  section  of  the  Statute 
of  Frauds,  that  "No  action  shall  be  brought  to  charge  the  defendant 
upon  any  special  promise  to  answer  for  the  debt,  default,  or  mis- 
carriage of  another  person,  unless  the  agreement  upon  which  such 
action  shall  be  brought,  or  some  memorandum  or  note  thereof,  shall 
be  in  writing,  and  signed  by  the  party  to  be  charged  therewith,  or 
by  some  other  person  thereunto  by  him  lawfully  authorized."  Here 
the  bond  was  given  to  Morris  as  the  creditor ;  but  the  promise  in 
question  was  not  made  to  him.  A  promise  to  him  would  have  been 
to  answer  for  the  default  of  the  debtor.  But  it  being  necessary 
for  W.  Cook,  since  deceased,  to  find  sureties,  the  defendant  ap- 
plied to  the  plaintiff  to  join  him  in  the  bond  and  bill  of  exchange, 
and  undertook  to  save  him  harmless.  A  promise  to  indemnify  does 
not,  as  it  appears  to  me,  fall  within  either  the  words  or  the  policy 
of  the  Statute  of  Frauds;  and  if  so,  there  was  sufficient  evidence  to 
entitle  the  plaintiff  to  a  verdict  for  £300. 

Parke,  J. :  This  was  not  a  promise  to  answer  for  the  debt,  de- 
fault or  miscarriage  of  another  person,  but  an  original  contract  be- 
tween these  parties,  that  the  plaintiff  should  be  indemnified  against 
the  bond.    If  the  plaintiff,  at  the  request  of  the  defendant,  had  paid 


A,  V* 


PROMISE    OF    INDEMNITY  163 

money  to  a  third  person,  a  promise  to  repay  it  need  not  have  been  in 
writing,  and  this  case  is  in  substance  the  same.     The  rule  for  re- 
ducing the  verdict  ought,  therefore,  to  be  discharged. 
Rule  discharged. 


Accord:   Reader  v.  Kingham,  13  C.  B.  (N.  S.)  344;  Guild  &  Co.  v.  Conrad, 
[1894]  2  Q.  B.  D.  885. 




5 
GREEN  v.  CRESSWELL4^ 

10  Adolphus  &  Ellis  453  (1839). 


, 


Assumpsit.  The  first  count  of  the  declaration  stated  that,  on 
2d  February,  1836,  a  capias,  directed  to  the  sheriff  of  Warwickshire, 
issued  from  the  Court  of  Exchequer  against  one  Joseph  Hadley,  at 
the  suit  of  one  John  Reay,  which  was  indorsed  for  bail  for  £135, 
and  was  delivered  to  the  sheriff,  who,  on  the  day  and  year  aforesaid, 
arrested  Hadley ;  that  afterward,  to  wit,  9th  February,  1836,  in 
consideration  that  plaintiff,  at  the  request  of  defendant,  would-be- 
come  bail  and  surety  for  Hadley,  and  would,  as  such  bail  and  surety, 
seal,  ahd~as~his  act  and  deed,  deliver  to  the  said  sheriff,  a  bail  bond, 
conditioned  for  putting  in  special  bail  by  Hadley,  defendant^ then 
promised  plaintiff  that  he,  defendant,  would  save  harmless  and  in- 
demnify plaintiff  from  all  payments,  damages,  costs,  and  expenses 
which  he,  plaintiff,  should  or  might  incur,  bear,  pay  and  sustain,  or 
be  put  unto  by  reason  or  by  means  of  so  becoming  bail  and  surety; 
that  plaintiff,  confiding,  etc.,  did  afterward,  to  wit,  on  the  day  and 
year  last  aforesaid,  at  the  request,  etc.,  seal  and  deliver  the  bail 
bond,  but  that  Hadley  did  not  put  in  special  bail,  whereby  the  bond 
became  forfeited;  that  afterward,  to  wit,  15th  February,  1836,  the 
sheriff  assigned  the  bail  bond  to  Reay,  who  thereupon  afterward.  J^0^^ 
to  wit,  on  the  day  and  year  last  aforesaid,  sued  the  present  plaintiff  •' 
on  the  bond  in  the  Court  of  Exchequer,  and  recovered  judgment^' 
for  £75  5s.  damages  and  costs;  and  afterward,  to  wit,  11th  August,  / 

1836,  sued  out  execution  by  fieri  facias  against  the  now  plaintiff, 
who  was  thereby  compelled  to  pay  £98  6s. ;  of  all  which  defendant 
ha'd  notice.  Breach  that  defendant  had  not  indemnified  plaintiff, 
nor  repaid  him  any  of  the  £98  6s.,  nor  divers  other  sums  expended 
for  costs,  etc.,  to  wit,  £50,  etc. 

Pleas.    1.    Non  assumpsit.     Issue  thereon. 

2.    The  Statute  of  Frauds. 

On  the  trial  before  Park,  J.,  at  the  Warwickshire  Summer  Assizes,^ 

1837,  evidence  was  given  of  the  promise,  as  stated  in  the  declara- 
tion; but  no  evidence  was  given  of  any  writing.    The  learned  judge  " 
was  of  opinion  that  the  case  was  not  within  the  Statute  of  Frauds ; 
and  a  verdict  was  found  for  the  plaintiff,  on  the  replication  of  the 


164  THE  STATUTE  OF  FRAUDS 


second  plea.  In  Michaelmas  Term,  1837,  Goulburn,  Sergeant,  ob- 
tained a  rule  for  a  new  trial,  or  arrest  of  judgment. 

Lord  Denman,  C.  J.,  afterward  in  this  term  (June  11th),  deliv- 
ered the  judgment  of  the  court.  After  stating'the  facts,  his  lord- 
ship proceeded  as  follows : 

A  motion  has  been  made  in  arrest  of  judgment,  the  promise  ap- 
pearing by  the  plea  not  to  have  been  in  writing,  and  the  replication 
only  averring  in  answer  that  it  was  not  a  special  promise  to  answer 
the  debt  or  default  of  another. 

The  promise  in  effect  is,  "If  you  will  become  bail  for  Hadley, 
and  Hadley,  by  not  paying  or  appearing,  forfeits  his  bail  bond,  I 
will  save  you  harmless  from  all  the  consequences  of  your  becoming 
bail.  If  Hadley  fails  to  do  what  is  right  toward  you,  I  will  do  it 
instead  of  him." 

If  there  had  been  no  decisions  on  the  subject,  it  would  appear  im- 
possible to  make  a  reasonable  doubt  that  this  is  answering  for  the 
default  of  another.  The  case  most  relied  on  by  the  plaintiff  is  that 
of  Thomas  v.  Cook,  where  this  court  held  that  a  promise  of  B 
to  hold  A  harmless  against  the  consequences  of  his  entering  with  B 
and  C,  at  B's  request,  into  a  joint  bond  to  indemnify  D  against  debts 
due  from  C  and  D  was  binding,  though  not  in  writing ;  Bayley,  J. 
and  Parke,  J.,  the  only  judges  present,  saying  that  a  promise  to  in- 
demnify does  not  fall  within  the  words  or  policy  of  the  statute.  But 
the  reasoning  in  this  case  does  not  appear  to  us  satisfactory  in  sup- 
port of  the  doctrine  there  laid  down,  which,  taken  in  its  full  extent, 
would  repeal  the  statute.  For  every  promise  to  become  answerable 
for  the  debt  or  default  of  another  may  be  shaped  as  an  indem- 
nity ;  but,  even  in  that  shape,  we  can  not  see  why  it  may  not  be 
within  the  words  of  the  statute.  Within  the  mischief  of  the  statute 
it  most  certainly  falls. 

Adams  v.  Dansey,  6  Bing.  506,  does  not  bear  out  the  general  doc- 
trine. That  was  a  promise  by  one  parishioner  to  indemnify  another 
against  the  consequences  of  resisting  a  claim  of  tithe.  This  is  not 
becoming  responsible  for  debt  or  default  of  any  other,  but  merely 
promising  to  pay  what  the  promisee  may  lose  by  defending  the 
promisor's  interests  in  a  suit. 

In  some  of  the  cases  the  language  employed  seems  to  assume  that 
the  debt,  default,  or  miscarriage  must  have  been  incurred  at  the 
time  of  making  the  promise.  But  the  common  case  of  becoming 
responsible  for  goods  supplied  to  another  on  the  faith  of  that 
promise,  and  of  course  after  it,  shows  that  criterion  to  be  inadmis- 
sible. 

A  distinction  was  also  hinted  at,  from  the  circumstance  of  Had- 
ley's  debt  being  due  to  a  third  person,  and  the  default  therefore  in- 
curred toward  him,  not  toward  the  bail.  But  here  again  is  the  sur- 
mise of  an  intention  in  the  legislature  which  none  of  its  language 
bears  out ;  and,  besides,  may  it  not  be  said  that  the  arrested  debtor, 


PROMISE    OF    INDEMNITY  165 

who  obtains  his  freedom  by  being  bailed,  undertakes  to  his  bail  to 
keep  them  harmless,  by  paying  the  debt,  or  surrendering? 

There  does  not  appear  any  objection  to  the  test  laid  down  in  the 
note  to  1  Williams'  Saunders,  211  c. ;  and  it  is  decisive  in  favor  of 
the  objection.  The  original  party  remained  liable ;  and  the  defendant 
incurred  no  liability  except  from  his  promise. 

Rule  absolute  for  arresting  the  judgment. 

i     See  also  Cripps  v.  Hartnoll,  4  B.  &  S.  414. 

',   ■ I 

WILDES  v.  DUDLOW  "A. 

y^vLM'        Laiu  Reports,  19  Equity  198  (1874). 

This  was  a  suit  for  the  administration  of  the  estate  of  John  Dud- 
low,  who  died  in  1854.  The  bill  was  hied  in  1868  by  legatee.  The 
cause  was  heard  in  1870,  and  the  common  administration  decree  was 
made.  The  estate  proved  insufficient  to  pay  the  legacies  in  full. 
Thereupon  the  plaintiffs  took  out  a  summons  to  vary  the  chief 
clerk's  certificate  by  striking  out  a  sum  of  £1,000,  which  John  Noble 
Dudlow,  the  son  and  one  of  the  executors  of  the  testator,  had  been 
allowed  to  charge  against  the  estate  and  retain  under  the  following 
circumstances : 

In  the  year  1853,  the  testator,  who  had  often  assisted  his  son- 
in-law,  Henry  Atkinson  Wildes,  in  raising  money,  requested  his 
son,  John  Noble  Dudlow,  to  join  Henry  Atkinson  Wildes  in  a  joint 
and  several  promissory  note  for  £1.000,  saying  that  he  (the  testator) 
did  not  like  his  (the  testator's)  name  going  so  often  to  Randall  & 
Co.,  from  whom  Henry  Atkinson  Wildes  intended  to  raise  the  said 
sum,  and  offering  to  indemnify  the  said  John  Noble  Dudlow  from 
any  loss  that  might  arise  from  his  joining  the  said  note.  John  Noble 
Dudlow  was  afterward  compelled  to  pay  the  said  sum,  and  the  chief 
clerk  had  allowed  his  claim  in  respect  of  such  payment. 

Sir  R.  Malins,  V.  C. :  The  question  is,  whether  this  contract  is, 
within  the  fourth  section  of  the  Statute  of  Frauds,  required  to  be 
in  writing.  The  words  of  that  clause  are,  "charge  the  defendant 
upon  any  special  promise  to  answer  for  the  debt,  default,  or  mis- 
carriage of  another."  What  was  the  promise  made  by  the  testator 
in  this  case  to  the  defendant  John  Dudlow?  It  was  not,  "I  engage 
(with  you  to  be  answerable  to  you  for  the  debt  of  Wildes,"  because 
Wildes  did  not  owe  Dudlow  anything,  but  he  says,  "If  you  will  do 
I  a  certain  act — namely,  render  yourself  liable  for  that  debt — I  will 
indemnify  you."  I  think  it  perfectly  clear  that  the  only  contract 
i  which  I  have  to  consider  is  that  between  father  and  son.  It  is  not 
that  he  will  pay  the  debt  of  Wildes,  but  that  if  the  son  will  guar- 


L66 


THE    STATUTE    OF    FRAUDS 


4 


antee  Wildes'  debt,  he  will  see  him  harmless,  or,  in  other  words, 
indemnify  him.  If  one  man  could  induce  another  to  alter  his  line 
of  conduct  in  that  way,  and  then  meet  him  with  the  Statute  of 
Frauds,  that  statute,  instead  of  being  a  protection  against  fraud, 
would  be  the  direct  means  of  fraud.  The  statute  enacts_that  if  one 
man  promises  to  pay  the  debt  of  another  the  promise  is  void  unless 
it  is  in  writing,  and  no  one  doubts  that  to  be  the  law ;  but  it  appears 
to  me,  upon  principle,  so  plain  that  the  present  case  is  not  within  the 
statute,  that  I  am  very  glad  to  find  that  what  occurred  to  me  as  be- 
ing the  proper  view  of  the  case  is  finally  decided  to  be  the  law  on  the 
subject.  There  has  been  a  conflict  of  authority,  and  I  confess  I  am 
surprised  to  find  that  there  has  been  so  much  conflict.  The  point 
was  originally  decided  by  two  of  the  most  eminent  judges  known 
on  the  bench  (Mr.  Justice  Bayley  and  Mr.  Justice  Parke,  afterward 
Lord  Wensleydale)  in  the  case  of  Thomas  v.  Cook,  and  they  decide 
it  upon  the  plainest  principles  of  common  sense  and  justice.  I  was 
therefore  surprised  to  find  that  in  a  later  case  of  Green  v.  Cresswell 
the  same  court,  constituted  at  that  time  of  other  judges,  had  taken 
a  different  view,  and  a  view  which,  if  it  had  been  maintained,  I  pos- 
sibly should  not  have  felt  myself  obliged  to  follow.  But  I  am  happy 
to  find  that,  the  matter  having  been  most  carefully  and  elaborately 
considered  in  the  case  of  Reader  v.  Kingham,  when  the  full  number 
of  judges  was  present,  the  case  of  Green  v.  Cresswell  was  over- 
ruled, and  the  law  as  laid  down  by  Thomas  v.  Cook  restored.  The 
learned  judges  commented  upon  those  cases,  and  said  that  the  law 
was  accurately  laid  down  in  Thomas  v.  Cook;  and  I  entirely  agree 
m  that  expression  of  opinion.  I  accordingly  decide  that  /whe_re_one_ 
person  induces  another  to  enter  into  an  engagement,  by  a  promise 
to  indemnify  him  against  liability,  that  is  not  an  agreement  within 
the  Statute  of  Frauds,  and  does  not  require  to  be  in  writing.  This 
/is  a  case  in  which  a  father  induced  his  son  to  guarantee-  the-debf~oF 
\  his  son-in-law  upon  a  promise  that  he  would  see  him  harmless. 
X  "Opon  every  principle  of  justice  he  is  bound  to  indemnify  him;  and 
I  think,  therefore,  that  the  son  is  perfectly  right  in  helping  himself 
(  out  of  the  estate  which  has  come  into  his  hands.  \The  force  of  the 
decision  in  Reader  v.  Kingham,  13  C.  B.  n.  s.  344,  was  somewhat 
shaken  by  the  opinion  expressed  by  Mr.  Justice  Blackburn  in 
Mountstephen  v.  Lakeman,  Law  Rep.  5  Q.  B.  613  ;  but,  as  the  de- 
cision of  the  Queen's  Bench  in  that  case  was  reversed  in  the  Ex- 
chequer Chamber,  Law  Rep.  7  Q.  B.  196,  and  also  in  the  House  of 
Lords,  Law  Rep.  7  H.  L.  17,  the  law  rests  on  the  plain  and  reason- 
able ground  upon  which  it  was  put  in  Reader  v.  Kingham,  13  C.  B. 
n.  s.  344.  The  decision  is,  therefore,  entirely  in  favor  of  the  de- 
fendant; and  I  hold  that  the  Chief  Clerk  has  done  perfectly  right 
in  allowing  this  £1,000  with  interest.  Therefore  the  motion  to  vary 
the  certificate  in  that  respect  must  be  dismissed  with  costs. 


PROMISE    OF    INDEMNITY  16/ 


Accord :  Smith  v.  Delaney,  64  Conn.  264,  29  Atl.  496,  42  Am.  St.  181 ;  Res- 
seter  v.  Waterman,  151  111.  169,  37  N.  E.  875;  Anderson  v.  Spence,  72  Ind. 
315,  37  Am.  Rep.  162;  Jones  v.  Bacon,  145  N.  Y.  446,  40  N.  E.  216;  Rose  v. 
Wallenberg,  31  Ore.  269,  44  Pac.  382.  39  L.  R.  A.  378,  65  Am.  St.  826;  De- 
meritt  v.  Bickford,  58  N.  H.  523. 


hurWco 

JOHN    HARTLEY,   DEFENDANT   IN   ERROR,   v.    CORNE-, 
LIUS  SANDFORD,  PLAINTIFF  IN  ERROR 

66  N.  J.  L.  627,  50  Atl.  454,  55  L.  R.  A.  206  (1901). 

The  opinion  of  the  court  was  delivered  by  Dixon,  J. 

The  material  facts  in  this  case,  as  disclosed  by  the  record,  are 
that  the  defendant's  son  was  indebted  to  M.,  who  desired  addi- 
tjonal_S£Curity ;  that  thereupon  the  defendant  applied  to  the  plain- 
tiff to  become  surety  for  the  son,  and  promised  him  that  if  he  was 
compelled  to  pay  the  debt,  he  (the  defendant)  would  reimburse  him; 
that  accordingly  the  plaintiff  became  surety  for  the  son,  and  subse- 
quently was  obliged  to  pay  the  debt.  This  suit  was  brought  upon 
the  promise,  which  was  oral  only. 

~~Tt  appears  that  at  the  trial  in  the  Passaic  Circuit  the  jury  were 
instructed  to  find  for  the  plaintiff  if  they  were  satisfied  the  promise 
had  been  made,  but  the  question  as  to  the  legal  sufficiency  of  the 
promise  was  reserved  and  certified  to  the  Supreme  Court,  which 
afterward  advised  the  circuit  that  the  promise  was  valid,  and  there- 
upon judgment  was  entered  on  the  verdict. 

In  this  court  error  has  been  assigned  on  the  charge  at  the  circuit, 
as  well  as  on  the  advisory  opinion  of  the  Supreme  Court,  but  there 
being  no  bill  of  exceptions  presenting  the  charge,  the  assignment  of 
error  respecting  it  is  futile  and  must  be  disregarded. 

The  assignment  upon  the  opinion  of  the  Supreme  Court  is  legal, 
and  presents  the  only  question  now  before  us,  which  is,  whether  the 
plaintiff's  suit  can  be  maintained,  in  view  of  our  statute  "that  no 
action  shall  be  brought  to  charge  the  defendant  upon  any  special 
promise  to  answer  for  the  debt,  default  or  miscarriage  of  another 
person,  unless  the  agreement  upon  which  such  action  shall  be 
brought,  or  some  memorandum  or  note  thereof,  shall  be  in  writing 
and  signed  by  the  person  to  be  charged  therewith  or  some  other 
person  thereunto  by  him  or  her  lawfully  authorized." 

The  advice  of  the  Supreme  Court  was  based  upon  its  opinion  that, 
under  the  adjudications  in  this  state,  the  promise  of  one  person  to 
indemnify  another  for  becoming  surety  of  a  third  is  not  within  the 
statute.  The  cases  cited  in  that  opinion  to  support  this  view  are 
Apgar's  Administrator  v.  Hiler,  4  Zab.  812;  Cortelyou  v.  Hoagland. 
13  Stew.  Eq.  1,  and  Warren  v.  Abbett,  36  Vroom  99.  Of  these, 
the  only  one  of  controlling  authority  here  is  that  of  Apgar's  Admin- 


168  THE  STATUTE  OF  FRAUDS 

istrator  v.  Hiler,  which  is  a  decision  of  this  court.  That  decision 
does  not  sustain  the  broad  proposition  for  which  it  was  cited.  This 
court  there  held  merely  that,  between  two  persons  who  had  signed 
the  same  promissory  note  as  sureties  for  another  signer,  the  oral 
promise  of  one  surety  to  indemnify  the  other  was  valid.  This  prom- 
ise was  deemed  outside  of  the  statute,  because,  by  signing  the  note, 
the  promisor  had  himself  become  a  debtor,  and  so  his  promise  to 
indemnify  was  to  answer  for.  his  own  debt.  In  Cortelyou  v.  Hoag- 
land  several  stockholders  and  directors  of  a  corporation  had  prom- 
ised to  indemnify  another  stockholder  and  director  for  indorsing  a 
corporate  note,  and  Warren  v.  Abbett  was  of  similar  character.  In 
the  Cortelyou  case  the  chancellor  rested  his  decision  on  Apgar's 
Administrator  v.  Hiler,  which,  as  above  stated,  was  essentially  dif- 
ferent, and  on  Thompson  v.  Coleman,  1  South.  216,  which  was  a 
promise  to  indemnify  a  constable  for  selling,  under  execution,  goods 
claimed  by  an  outside  party,  a  case  where  the  promisee  had  no  re- 
dress except  on  the  promise,  and  therefore  clearly  outside  of  the 
statute.  If  the  decisions  in  Cortelyou  v.  Hoagland  and  Warren  v. 
Abbett  are  to  be  supported  on  prior  New  Jersey  adjudications,  such 
support  must  be  found  in  the  doctrine  that,  where  the  considera- 
tion of  a  promise  to  answer  for  the  debt,  default  or  miscarriage  of 
another  is  a  substantial  benefit  moving  to  the  promisor,  then  the 
statute  does  not  apply.  This  rule  was  recognized  in  Kutzmeyer  v. 
Ennis,  3  Dutcher  371,  and  Cowenhoven  v.  Howell,  7  Vroom  323. 
To  support  those  decisions  on  this  rule  it  must  be  held  that  the  pay- 
ment of  a  corporate  debt  is  substantially  beneficial  to  the  stock- 
holders or  directors  of  the  corporation,  a  proposition  which  seems 
to  be  denied  in  other  tribunals.    Browne  Frauds,  p.  164. 

In  the  promise  now  under  consideration  there  was  no  such  ele- 
ment, and  no  case  has  been  found  in  our  reports  involving  the  pres- 
ent question.  We  should,  therefore,  decide  the  matter  on  principle, 
or  as  nearly  so  as  related  adjudications  will  permit. 

Looked  at  as  res  nova,  it  seems  indisputable  that  the  defendant's 
promise  was  within  the  statute;  it  was  to  respond  to  the  plaintiff 
in  case  the  defendant's  son  should  make  default  in  the  obligation 
which  he  would  come  under  to  the  plaintiff  as  soon  as  the  plaintiff 
became  surety  for  him,  an  obligation  either  to  pay  the  debt  for  which 
the  plaintiff  was  to  be  surety  or  to  reimburse  the  plaintiff  if  he  paid 
it.  In  this  statement  of  the  nature  of  the  promise  there  is,  I  think, 
every  element  which  seems  necessary  to  bring  a  case  within  the  pur- 
view of  the  statute.  The  parties,  in  giving  and  accepting  the  prom- 
ise, contemplated  (1)  an  obligation  by  a  third  person  to  the  prom- 
isee; (2)  that  this  obligation  should  be  the  foundation  of  the  prom- 
ise— i.  e.,  that  the  obligation  of  the  son  to  the  promisee  should  attach 
simultaneously  with  the  suretyship  of  the  plaintiff,  and  thereupon 
should  arise  the  obligation  of  the  promisor  for  the  fulfilment  of  the 
son's  obligation,  and  (3)  that  the  obligation  of  the  promisor  should 


'  PROMISE   OF   INDEMNITY  169 

be  collateral  to  that  of  the  son— i.  e.,  if  the  latter  should  perform  his 
obligation,  the  promisor  would  be  discharged,  while  if  the  promisor 
was  required  to  perform  his  obligation,  that  of  the  son  would  not 
be  discharged,  but  only  shifted  from  the  promisee  to  the  promisor. 

An  examination  of  the  cases  will  show  that  not  many  of  them  are 
in  conflict  with  this  view,  when  they  are  free  from  differentiating 
circumstances. 

In  the  leading  case  of  Thomas  v.  Cook,  8  Barn.  &  C.  728,  such  a 
circumstance  appears  in  the  fact  that  the  promisor  was  himself  a 
signer  of  the  bond  against  which  he  promised  to  indemnify  the 
promisee,  and  thus  the  promise  was,  in  a  reasonable  sense,  to  answer 
for  that  which,  as  to  the  promisee,  was  the  promisor's  own  debt.  On 
this  difference  may  be  explained  the  decisions  in  Jones  v.  Letcher, 
13  B.  Mon.  363;  Horn  v.  Bray,  51  Ind.  555;  Barry  v.  Ransom,  12 
N.  Y.  462 ;  Sanders  v.  Gillespie,  59  Id.  250 ;  Ferrell  v.  Maxwell,  28 
Ohio  St.  383,  and  others,  resting  on  the  rule  applied  in  Apgar's  Ad- 
ministrator v.  Hiler,  4  Zab.  812. 

The  remark  of  Mr.  Justice  Bayley,  in  Thomas  v.  Cook,  that  a 
promise  to  indemnify  was  not  within  either  the  words  or  the  policy 
of  the  statute,  has  caused  much  of  the  confusion  existing  on  this 
subject,  but  is  more  than  counterbalanced  by  the  observations  of 
Lord  Denman,  in  Green  v.  Cresswell,  10  Ad.  &  E.  453.  and  Chief 
Baron  Pollock,  in  Cripps  v.  Hartnoll,  4  Best  &  S.  414,  to  the  effect 
that  a  promise  to  indemnify  may  be  also  an  undertaking  to  answer 
for  the  debt  or  default  of  another,  and  that  when  it  is,  it  comes 
within  the  operation  of  the  statute. 

Another  circumstance  taking  cases  out  of  the  simple  class  with 
which  we  are  now  concerned  is  that  mentioned  in  Kutzmeyer  v. 
Ennis,  3  Dutcher  271,  276,  viz.,  the  existence  of  a  new  consideration 
beneficial  to  the  promisor,  or,  as  it  is  sometimes  expressed,  moving 
to  the  promisor.  Such  cases  are  Smith  v.  Sayward,  5  Greenl.  504 ; 
Lucas  v.  Chamberlain,.  8  B.  Mon.  276;  Mills  v.  Brown,  11  Iowa 
314;  Reed  v.  Holcomb,  31  Conn.  360;  Smith  v.  Delaney,  64  Id.  264 ; 
Potter  v.  Brown,  25  Mich.  274;  Comstock  v.  Norton,  36  Id.  277; 
Harrison  v.  Sawtel,  10  Johns.  242 ;  Sanders  v.  Gillespie,  59  N.  Y. 
250;  Tighe  v.  Morrison,  116  Id.  263. 

Cases  of  still  another  character  are  sometimes  cited  in  support 
of  the  statement  that  contracts  to  indemnify  are  outside  of  the 
statute,  such  as  Cripps  v.  Hartnoll,  4  Best  &  S.  414 ;  Reader  v. 
Kingham,  13  C.  B.  (N.  S.)  344;  Anderson  v.  Spence,  72  Ind.  315; 
Keesling  v.  Frazier,  119  Id.  186;  Beaman  v.  Russell,  20  Vt.  205. 
But  these  judgments  rest  on  the  same  idea  as  Thompson  v.  Cole- 
man, 1  So.  216,  that  there  existed  no  other  liability  to  the  prom- 
isee than  that  of  the  promisor,  and  so,  manifestly,  the  statute  was 
not  applicable. 

On  the  other  hand,  there  is  sufficient  judicial  authority  for  the 
proposition  that  an  undertaking  to  indemnify  a  person  for  becom- 


1/0  THE    STATUTE   OF   FRAUDS 

ing  surety  for  another  is.  in  the  absence  of  any  modifying  fact,  a 
promise  within  the  statute.  Green  v.  Cresswell,  10  Ad.  &  E.  .453 ; 
Simpson  v.  Nance,  1  Spears  4;  Brown  v.  Adams,  1  Stew.  51 ;  Kelsey 
v.  Hibbs,  13  Ohio  St.  340 ;  Clement's  Appeal,  52  Conn.  464 ;  Bissig 
v.  Britton,  59  Mo.  204;  Nugent  v.  Wolfe,  111  Pa.  St.  471 ;  Draughan 
v.  Bunting,  9  Ired.  10;  Hurt  v.  Ford,  44  S.  W.  228,  and  May  v. 
Williams,  61  Mass.  125,  were  decided  on  this  basis.  In  the  case  last 
mentioned,  Mr.  Justice  Porter  stated  the  true  rules  very  clearly  and 
concisely. 

No  doubt  there  are  opposing  cases  which  can  not  be  explained  on 
any  distinguishing  circumstances.  Such  seem  to  be  Chapin  v.  Mer- 
rill, 4  Wend.  657;  Jones  v.  Bacon,  40  N.  E.  216;  Dunn  v.  Wrest,  5 
B.  Mon.  376;  Vogel  v.  Melms,  31  Wis.  306,  and  Wildes  v.  Dudlow, 
L.  R.  19  Eq.  Cas.  198.  But  some  of  these  cases  merely  follow 
Thomas  v.  Cook,  ubi  supra,  without  noticing  the  distinction  which 
later  discussion  has  justified,  while  others  appear  to  have  been  in- 
duced by  the  injustice  of  a  refusal  to  enforce  a  promise  on  the 
strength  of  which  the  promisee  incurred  his  liability,  rather  than  by 
a  ready  purpose  to  execute  the  will  of  the  legislature. 

No  doubt  injustice  may  result  from  the  enforcement  of  the  statu- 
tory rule,  but  that  rule  'sprang  from  a  conviction  that  its  adoption 
would  prevent  more  wrong  than  it  would  permit,  and  its  enactment 
in  England  and,  perhaps,  every  state  in  this  union,  indicates  the  gen- 
erality of  this  assurance.  Said  Mr.  Justice  Sterrett,  in  Nugent  v. 
Wolfe,  ubi  supra :  "The  object  of  the  statute  is  protection  against 
'fraudulent  practices  commonly  endeavored  to  be  upheld  by  perjury/ 
and  it  should  be  enforced  according  to  its  true  intent  and  meaning, 
notwithstanding  cases  of  great  hardship  may  result  therefrom." 
With  more  detail  did  Chief  Justice  Shaw,  in  Nelson  v.  Boynton,  3 
Mete.  396,  say :  "The  object  of  the  statute  manifestly  was  to  secure 
the  highest  and  most  satisfactory  species  of  evidence  in  a  case  where 
a  party,  without  apparent  benefit  to  himself,  enters  into  stipulations 
of  suretyship,  and  where  there  would  be  a  great  temptation,  on  the 
part  of  a  creditor,  in  danger  of  losing  his  debt  by  the  insolvency  of 
his  debtor,  to  support  a  suit  against  the  friends  or  relatives  of  the 
debtor,  a  father,  son  or  brother,  by  means  of  false  evidence ;  by 
exaggerating  words  or  recommendation,  encouragement  to  forbear- 
ance and  requests  for  indulgence,  into  positive  contracts." 

Our  conclusion  is  that  the  promise  proved  at  the  trial  was  insuf- 
ficient to  sustain  the  action ;  that  the  judgment  for  the  plaintiff 
should  be  reversed,  and  that,  in  accordance  with  the  reservation  at 
the  trial,  a  verdict  and  judgment  should  be  entered  in  favor  of  the 
defendant. 

For  affirmance — Van  Syckel.    1. 

For  reversal — The  Chancellor,  Dixon,  Garrison,  Collins,  Gar- 
retson,  Hendrickson,  Bogert,  Adams,  Vredenburgh,  Voorhees, 
Vroom.    11. 


CREDIT    GIVEN    TO    PROMISOR 


/ 


171 


Accord :  May  v.  Williams,  61  Miss.  125,  48  Am.  Rep.  80 ;  Gansey  v.  Orr, 
173  Mo.  532,  73  S.  W.  477;  Easter  v.  White,  12  Ohio  St.  219;  Nugent  v. 
Wolfe,  111  Pa.  471,  4  Atl.  15,  56  Am.  Rep.  291;  Wolverton  v.  Davis,  85  Va. 
64,  6  S.  E.  619,  17  Am.  St.  56. 

If  a  surety  on  an  obligation,  upon  his  promise  of  indemnity,  procures  an- 
other to  become  surety  with  him  on  the  same  instrument,  the  promise  is  not 
within  the  statute,  for  the  indemnity  promised  is  to  secure  his  own  default. 
Horn  v.  Bray,  51  Ind.  555,  19  Am.  Rep.  742;  Boyer  v.  Soules,  105  Mich.  31,  62 
N.  W.  1000 ;  Ferrell  v.  Maxwell,  28  Ohio  St.  383,  22  Am.  Rep.  393. 

Contra:  Wolverton  v.  Davis,  85"  Va.  64,  6  S.  E.  619,  17  Am.  St.  56. 

A  contract  between  cosureties  fixing  the  proportion  and  extent  of  their  sev- 
eral and  correlative  liability  as  between  themselves  is  not  within  the  statute. 
Rose  v.  Wollenberg,  31  Ore.  269,  44  Pac.  382,  39  L.  R.  A.  378,  65  Am.  St.  826. 


SECTION  4.    CREDIT  GIVEN  TO  THE  PROMISOR 

WATKINS  v.  PERKINS  - 

1  Lord  Raymond  224  (1697). 

Per  Holt,  C.  J. :  If  A  promise  B,  being  a  surgeon,  that  if  B  cure 
D  of  a  wound,  he  will  see  him  paid ;  this  is  only  a  promise  to  pay  if 
'D  does  not,  and  therefore  it  ought  to  be  in  writing  by  the  Statute  of 
Frauds.  But  if  A  promise, 'in  such  case,  that  he  will  be  B's  pay- 
master.  whatever  he  shall  deserve,  it  is  immediately  the  debt  of  A, 
and  he  is  liable  without  writing. 


BUCKMYR  v.  DARNALL/ 

2  Lord  Raymond  1085   (1704). 


An  action  upon  the  case  wherein  the  plaintiff  declared  that  the 
defendant,  in  consideration  the  plaintiff,  at  his  request  locaret  et 
deliberaret  cuidam  Josepho  English  a  gelding  of  the  plaintiff's  ad 
equitandum  et  itinerandum  usque  ad  Reading  in  comitatu  Berks, 
assumpsit  et  promisit  the  plaintiff,  quod  the  said  Joseph  and  Charles 
the  said  gelding  to  the  plaintiff  redeliberarent,  etc.  Upon  non  as- 
sumpsit pleaded,  this  cause  came  to  trial  before  Holt,  Chief  Justice, 
at  Westminster  Hall ;  and  the  counsel  for  the  defendant  insisting 
that  the  plaintiff  ought  to  produce  a  note  in  writing  of  this  promise, 
wudiTnThe  Statute  of  Frauds,  29  Car.  2,  c.  e.,  s.  4;  and  the  Chief 
Justice  doubting  of  it,  a  case  was  made  of  it,  and  ordered  to  be 
moved  in  court,  to  have  the  opinion  of  the  other  judges.  And  now 
it  was  argued  this  term  by  Sergeant  Darnall  for  the  defendant,  and 
by  Mr.  Raymond  for  the  plaintiff.  And  it  was  insisted  for  the  de- 
fendant that  this  case  was  within  the  Statute  of  Frauds,  29  Car.  2, 


172  THE    STATUTE   OF   FRAUDS 

c.  3,  s.  4,  for  it  was  a  promise  to  answer  for  the  default  and  mis- 
carriage of  the  person  the  horse  was  lent  to.  The  very  letting  out 
and  delivery  of  the  horse  to  English  implies  a  contract  by  English  to 
redeliver  him,  and  he  is  bound  by  law  so  to  do,  and  consequently, 
the  delendan44§-4o  answer  for  the  default  of  another.  In  a  case^ 
Will.  &  Mar.,  your  Lordship  settled  this  rule,  that  where  an  action 
will  lie  against  the  party  himself,  there  an  undertaking  by  J.  S.  is 
within  the  statute ;  and  where  no  action  will  lie  against  the  party 
himself,  there  it  is  otherwise.  And  therefore  I  agree  this  case,  that  if 
a  man  should  say  to  another,  "Do  you  build  a  house  for  J.  S.  and  I 
will  pay  you,"  that  case  is  not  more  than  this,  if  a  man  should  say, . 
"Do  you  let  J.  S.  have  goods,  and  if  he  does  not  pay  you  I  will," 
and  this  is  within  the  statute,  because  an  action  will  lie  against  J.  S. 
for  the  money  for  the  goods.  Or,  if  a  man  should  say,  "Take  J.  S. 
into  your  service,  and  if  he  does  not  serve  you  faithfully,  or  if  he 
wrongs  you,  I  will  be  responsible,"  that  is  also  within  the  statute. 

To  this  it  was  answered  for  the  plaintiff,  that  here  the  credit  was 
wholly  given  to  the  defendant ;  that  that  rule  of  the  sergeant's  must 
be  understood,  where  an  action  does  or  does  not  lie  against  the  party 
himself  on  the  contract,  and  not  where  an  action  does  or  does  not 
lie  against  him  upon  collateral  respects.  And  therefore  in  this  case, 
for  an  actual  conversion,  or  for  refusing  to  redeliver  the  horse, 
English  may  be  charged  in  trover  or  detinue ;  yet,  he  being  not 
chargeable  upon  the  contract,  the  case  is  not  within  the  statute. 
This  contract  can  not  be  said  properly  to  be  a  promise  to  answer 
for  the  default  or  miscarriage  of  another,  unless  English  were  liable 
by  the  first  contract. 

Upon  the  first  motion  and  arguing  this  case,  the  three  judges 
against  Powys  seemed  to  be  of  opinion  that  this  case  was  not 
within  the  statute,  because  English  was  not  liable  upon  the  con- 
tract ;  but  if  any  action  could  be  maintained  against  him,  it  must  be 
for  a  subsequent  wrong  in  detaining  the  horse,  or  actually  convert- 
ing it  to  his  own  use.  And  Powell,  Justice,  said  that  that  rule,  of 
what  things  shall  be  within  the  statute,  is  not  confined  to  those  cases 
only,  where  there  is  no  remedy  at  all  against  the  other,  but  where 
there  is  not  any  remedy  against  him  on  the  same  contract.  This  case 
is  just  like  the  case  where  a  man  says,  "Send  goods  to  such  a  one, 
and  I  will  pay  you ;"  that  is  not  within  the  statute,  for  the  seller 
does  not  trust  the  person  he  sends  the  goods  to.  So  here  the  stable- 
keeper  only  trusted  the  defendant,  and  an  action  on  the  contract  will 
not  lie  against  English,  but  for  a  tort  subsequent  he  may  be  charged 
in  detinue,  or  trover  and  conversion,  which  is  a  collateral  action. 

Powys,  Justice,  said  that  there  was  a  trust  to  English,  for  the 
very  lending  of  the  horse  necessarily  implies  a  trust  to  the  person  he 
is  lent  to,  and  consequently  the  defendant  in  this  case  is  to  answer 
for  the  default  of  another,  and  is  within  the  statute. 

Powell,  Justice,  agreed,  that  if  a  man  should  say,  "Lend  J.  S.  a 


— v3 
CREDIT    GIVEN    TO   PROMISOR  173 

horse,  and  I  will  undertake  he  shall  pay  the  hire  of  it,'3  or,  "Send 
J.  S.  goods,  and  I  will  undertake  he  shall  pay  you,"  that  those  cases 
would  be  within  the  statute ;' and  agreed  with  Powys,  that  if  any 
trust  were  given  to  English,  then  the  case  would  be  within  the  stat- 
ute. But  he  and  the  Chief  Justice  and  Gould  held,  that  here  was  no 
credit  given  to  English ;  and  the  Chief  Justice  agreed  with  him, 
that  if  there  had,  this  promise  would  have  been  but  an  additional 
security,  and  within  the  statute.  But  the  Chief  Justice  said,  that  if 
a  man  should  say,  "Let  J.  S.  ride  your  horse  to  Reading,  and  I  will 
pay  you  the  hire,"  that  is  not  within  the  statute,  no  more  than  if  a 
man  should  say,  "Deliver  cloth  to  J.  S.,  and  I  will  pay  you."  He 
said  also,  that  a  bailee  of  an  horse  for  hire  is  not  bound  to  redeliver 
him  at  all  events,  but  if  he  be  robbed  of  him  without  fraud  in  him, 
he  is  excused.  And  so  it  was  ruled  in  the  case  of  Coggs  v.  Bernard, 
2  Stra.  916. 

The  last  day  of  the  term  the  Chief  Justice  delivered  the  opinion 
of  the  court.  He  said  that  the  question  had  been  proposed  at  a  meet- 
ing of  judges,  and  that  there  had  been  great  variety  of  opinions  be- 
tween them,  because  the  horse  was  lent  wholly  upon  the  credit  of 
the  defendant ;  but  that  the  judges  of  this  court  were  all  of  opinion 
that  the  case  was  within  the  statute.  The  objection  that  was  made 
was,  that  if  English  did  not  redeliver  the  horse,  he  was  not  charge- 
able in  an  action  upon  the  promise,  but  in  trover  or  detinue,  which 
are  founded  upon  the  tort,  and  are  for  a  matter  subsequent  to  the, 
agreement.  But  I  answered  that  /English  may  be  charged  on  the  {  - 
bailment  in  detinue  on  the  original  delivery,  and  a  detinue  is  the  s  ,, 
adequate  remedy,  and  upon  the  delivery  English  is  liable  in  detinue, 
and  consequently  this  promise  by  the  defendant  is  collateral,  and  is 
within  the  reason  and  the  very  words  of  the  statute;  and  is  as  much 
so~as  if,  where  a  man  was  indebted,  J.  S.,  in  consideration  that  the 
debtee  would  forbear  the  man,  should  promise  to  pay  him  the  debt, 
such  a  promise  is  void  unless  it  be  in  writing.  Suppose  a  man  comes 
with  another  to  a  shop  to  buy,  and  the  shopkeeper  should  say,  "I 
will  not  sell  him  the  goods  unless  you  will  undertake  he  shall  pay 
me  for  them,"  such  a  promise  is  within  the  statute ;  otherwise,  if  a 
man  had  been  the  person  to  pay  for  the  goods  originallv.  So  here  ~i 
detinue  lies  against  English  the  principal;  and  the  plaintiff  having 
thisjremedy  against  English  the  principal,  can  not  have  an  action 
against  the  defendant  the  undertaker,  unless  there  had  been  a  note 
in  writing. 


Accord:  Matson  v.  Wharam,  2  T.  R.  80;  Anderson  v.  Hayman,  1  H.  Bl. 
120;  Cox  v.  Peltier,  159  Jnd.  355,  65  N.  E.  6;  Wallace  v.  Wortham,  25  Miss. 
119,  57  Am.  Dec.  197;  Hodges  v.  Hall,  29  Vt.  209;  Boston  v.  Farr,  148  Pa.  St. 
220,  23  Atl.  901 ;  Smith  v.  Miller,  152  Ala.  485,  44  So.  399. 


174  THE    STATUTE    OF    FRAUDS 

FRANK  S.  LUSK  ET  AL.  v.  BEN  THROOP  ET  AL.: 

189///.  127,  59  N.  E.  529  (1901). 

This  is  an  action  of  assumpsit,  begun  on  August  4,  1898,  by  ap- 
pellees, Ben  Throop  and  William  Pinnow,  doing  business  under  the 
firm  name  of  Throop  &  Pinnow,  against  the  appellants,  Frank  S. 
Lusk  and  D.  D.  Streeter,  composing  the  firm  of  D.  D.  Streeter  & 
Co.,  to  recover  the  value  of  goods  and  supplies  sold  and  delivered 
by  appellees  to  the  firm  of  Carlson  &  Olson,  composed  of  Carl 
August  Carlson  and  Andrew  Olson,  under  an  alleged  agreement 
Avith  the  appellants,  made  prior  to  their  delivery,  to  pay  for  the 
same.  The  declaration,  filed  on  December  30,  1898,  contains  the 
usual  common  counts,  setting  forth  that  there  is  due  from  appel- 
lants to  appellees  the  sum  of  $1,297.77.  A  trial  was  had  before  the 
court  and  a  jury,  which  resulted  in  a  judgment  in  favor  of  the  ap- 
pellees and  against  the  appellants  for  $1,380.70.  A  motion  for  a 
new  trial  was  made  and  overruled,  and  an  appeal  was  perfected  by 
appellants  to  the  appellate  court,  where  the  judgment  of  the  circuit 
court  has  been  affirmed ;  and  appellants  prosecute  their  further  ap- 
peal  from  such  judgment  of  affirmance  to  this  court. 

The  material  facts  are  substantially  as  follows :  In  1897  appel- 
lants were  constructing  a  line  of  railroad  for  the  Chicago  and 
Northwestern  Railway  Company  in  McHenry  county  under  the 
firm  name  of  D.  D.  Streeter  &  Co.  A  portion  of  such  work  of  con- 
struction was  sublet  by  appellants  to  the  firm  of  Carlson  &  Olson. 
The  appellees,  Throop  &  Pinnow,  were  at  that  time  merchants  in 
the  village  of  Nunda  in  McHenry  county,  conducting  a  general 
store.  The  subcontractors,  Carlson  &  Olson,  applied  to  appellees  to 
obtain  supplies  for  themselves  and  their  employes,  while  they  were 
carrying  on  the  work  of  constructing  said  railroad.  The  part  of  the 
road  which  Carlson  &  Olson  undertook  to  construct  was  between 
the  stations  of  Nunda  and  Ridgefield  in  said  county.  After  Carlson 
&  Olson  had  gone  to  Throop  &  Pinnow  to  obtain  credit  for  said 
goods,  Pinnow  and  Throop  went  to  the  office  of  D.  D.  Streeter  & 
Co.  and  had  a  conversation  with  Frank  S.  Lusk,  the  junior  member 
of  D.  D.  Streeter  &  Co.,  about  extending  credit  to  Carlson  &  Olson, 
After  said  conversation,  appellees  proceeded  to  furnish  and  deliver 
to  Carlson  &  Olson  the  supplies  called  for  by  them. 

There  is  a  conflict  in  the  evidence  as  to  the  nature  of  the  con- 
versations which  took  place  between  appellees  and  the  appellant, 
Lusk,  in  reference  to  furnishing  goods  or  supplies  to  Carlson  & 
Olson.  Appellees  claim  that  Lusk  told  them  to  furnish  Carlson  & 
Olson  with  what  groceries  and  supplies  they  wanted,  and  they, 
appellants,  would  pay  for  them  ;  but  appellants  claim  that  Lusk  told 
appellees  that,  if  they  allowed  Carlson  &  Olson  to  have  the  supplies 


:iMI     GIVEN     TO    PROMISOR  175 


necessary  for  the  men  in  their  camp  he,  Lusk,  would  see  that  they 
were  paid  for  the  same  out  of  any  moneys  that  mighl  he  COffling  to 
tTaHspjL&_Qls.oiLXQr_work  performed  by  Carlson  &  Olson  for  ap- 
pellants, before  Carlson  &  Olson  received  any  money  themselves. 

Mr.  Justice  Magruder  delivered  the  opinion  of  the  court. 

If,  before  the  delivery  of  any  supplies  and  provisions  by  appellees 
to  Carlson  &  Olson,  the  appellants  promised  appellees  to  pay  for 
such  supplies  and  provisions  as  appellees  might  thereafter  deliver 
to  Carlson  &  Olson,  the  undertaking  of  appellants  was  original,  and 
not  collateral,  and  appellants  were  liable  on  such  original  promise. 
The  testimony  of  both  of  the  appellees,  and  of  another  witness, 
tends  to  establish  the  making  of  such  original  promise  by  the  appel- 
lants. It  is  true,  that  the  testimony  of  the  appellant,  Lusk,  is  in 
direct  contradiction  of  the  testimony  given  by  the  appellees  and 
their  witness,  and  is  to  the  effect  that  the  appellants  merely  agreed 
to  keep  back  from  the  money  earned  by  Carlson  &  Olson  in  the  con- 
struction of  the  railroad  a  sufficient  amount  to  pay  the  bills  of  ap- 
pellees, before  Carlson  &  Olson  should  receive  any  money  on  their 
contract.  The  respective  contentions  of  the  appellees  and  of  the 
appellants  in  regard  to  the  nature  of  the  agreement  between  them 
were  submitted  to  the  jury  under  the  instructions  of  the  court,  and 
the  jury  found  in  favor  of  the  appellees ;  that  is  to  say,  that  appel- 
lants were  liable  as  original  promisors.  Upon  the  questions  of  fact 
thus  involved,  the  judgment  of  the  circuit  court  in  favor  of  the 
appellees,  and  the  judgment  of  the  appellate  court,  affirming  such 
judgment  of  the  circuit  court,  are  conclusive ;  and  the  only  questions 
which  this  court  can  review  upon  the  present  appeal  are  questions 
of  law.  (Henry  v.  Stewart,  185  111.  448;  Hight  v.  Walker,  178  Id. 
209;  Boyce  v.  Tallerman,  supra.) 

Section  1  of  the  statute  of  frauds  provides  "that  no  action  shall 
be  brought,  whereby  to  charge  *  *  *  the  defendant  upon  any 
special  promise  to  answer  for  the  debt,  default  or  miscarriage  of 
another  person,  *  *'  *  unless  the  promise  or  agreement  upon 
which  such  action  shall  be  brought,  or  some  memorandum  or  note 
thereof,  shall  be  in  writing,"  etc.  (2  Starr  &  Curt.  Ann.  Stat. — 2d 
.  ed. — p.  1990.)  Appellants  claim  that,  if  they  made  any  promise  to 
pay  for  the  goods  which  appellees  might  deliver  to  Carlson  &  Olson, 
such  promise  was  verbal  merely,  and  not  in  writing,  and  was,  there- 
/  fore^  void  under  the  statute  of  frauds.  Undoubtedly,  under  the 
statute  of  frauds  the  promise  to  pay  the  debt  of  another,  after  the 
same  is  incurred,  is  void,  unless  made  upon  a  consideration  and 
reduced  to  writing.  (Durant  v.  Rogers,  71  111.  121 ;  Denton  v. 
Jackson,  106  Id.  433;  Laidlou  v.  Hatch,  75  Id.  11 ;  Eddy  v.  Roberts, 
17  Id.  505;  Everett  v.  Morrison,  Breese,  79.)  But  where  goods,, 
money  or  services  are  furnished  to  a  third  person,  at  the  request  and 
upon  the  credit  of  the  promisor,  the  undertaking  is  clearly  original, 
and  in  such  case  the  statute  of  frauds  does  not  apply.  '  (Heary  v. 


*5 


176  THE  STATUTE  OF  FRAUDS 

O'Neil,  73  111.  593;  Hughes  v.  Atkins,  41  Id.  213 ;  Williams  v.  Cor- 
bet, 28  Id.  262;  Blank  v.  Dreher,  25  Id.  331 ;  Owens  v.  Stevens,  78 
Id.  462 ;  Hartley  Bros.  v.  Varner,  88  Id.  561 ;  Schoenfeld  v.  Brown, 
78  Id.  487;  1  Reed  on  Statute  of  Frauds,  §  84;  3  Parsons  on  Con- 
tracts—8th  ed.— marg.,  p.  21;  Bishop  on  Contracts,  §  1260;  Res- 
seter  y.  Waterman,  151  111.  169.)  In  Resseter  v.  Waterman,  supra, 
we  said  :  "It  may  be  said  to  be  the  settled  rule  that,  Avhere  the  agree- 
ment  is  original  and  independent,  it  is  not  within  the  statute;  if 
collateral,  it  is."  The  rule  is  thus  stated  by  Browne  in  his  work  on 
the  statute  of  frauds  (4th  ed.,  §  195)  :  "If,  for  instance,  goods  are 
sold  upon  the  sole  credit  and  responsibility  of  the  defendant,  though 
delivered  to  a  third  person,  there  is  no  liability,  to  which  that  of  the 
defendant  can  be  collateral,  and,  consequently,  it  does  not  require 
^a  memorandum  in  writing."  Thestatute  of  frauds  <^y*  that  a 
^promise  to  pay  the  debt  of  another  must  be  in  writing.  'Hence, 
jvhen  the  promise  is  made,  there  must  be  an  existing  debt.  It,  icv 
example,  appellees  had  already  delivered  the  supplies  to  Carlson  & 
Olson,  and,  after  such  delivery,  appellants  had  promised  to  pay  for 
the  same,  then  the  promise  would  be  to  pay  an  existing  debt  due 
from  a  third  person,  and,  hence,  would  come  within  the  meaning  of  ' 
the  statute. ...But,  where  the  defendant  promises  the  plaintiff  to'  pay 
-for  goods,  which  the  plaintiff  may  thereafter  deliver  to  a  third  per- 
son, and  which,  at  the  time  of  the  promise,  have  not  been  delivered 
no  debt  exists  from  such  third  person  to  the  plaintiff,  and  hence  thi 
promise  of  the  defendant  to  pay  is  an  original  undertaking,  and  no 
merely  a  promise  to  pay  the  debt  of  another.  (Williams  v.  Corbet? 
-  supra.) 

Whether  or  not  the  promise  is  original  or  collateral,  within  the 
definitions  already  given,  is  a  question  to  be  determined  by  the  jury 
from  all  the  circumstances  of  the  case,  and  under  the  instructions  of 
■  the  court.  (Ruggles  v.  Gatton,  50  111.  412;  Resseter  v.  Waterman, 
supra;  8  Am.  &  Eng.  Ency.  of  Law — 1st  ed. — pp.  677-679;  Geary  v. 
O'Neil,  supra ;  Moshier  v.  Kitchell,  87  111.  18 ;  Browne  on  the  Stat- 
ute of  Frauds,  §  199;  1  Reed  on  Statute  of  Frauds,  §§  85,  89,  91; 
Boykin  v.  Dohlonde,  37  Ala.  583.)  Inasmuch  as  "the  question, 
whether  or  not  the  promise  in  the  present  case  was  an  original  or  a 
collateral  undertaking  was  a  question  for  the  determination  of  the 
jury,  and  was  submitted  to  the  jury  under  proper  instructions,  their 
finding  in  favor  of  the  appellees  is  conclusive,  so  far  as  this  court  is 
concerned.  At  the  request  of  appellants,  the  court  instructed  the 
jury  that,  if  they  believed  from  the  evidence  that  the  appellants  did 
promise  to  pay  for  the  goods  in  question,  it  was  for  them  to  deter- 
mine from  the  evidence  whether  or  not  such  promise  was  an  original 
or  a  collateral  undertaking. 

There  was  evidence  showing  that  the  appellees  charged  the  sup- 
plies delivered  on  their  books  under  the  heading  of  "Carlson  & 
Olson  and  Streeter  &  Co."    Appellants  complain  that  the  second 


CREDIT    GIVEN    TO    PROMISOR  177 

instruction  given  by  the  trial  court  for  the  appellees,  which  had  ref- 
erence to  these  charges  upon  the  books  of  appellees,  was  erroneous. 
That  instruction  told  the  jury  that  when  a  third  person  promises  to 
pay  for  goods  that  are  thereafter  to  be  delivered  to  another  person, 
and  the  credit  is  thereby  extended  to  such  person  so  promising  to 
pay  for  the  same,  and  he  is  held  for  the  payment  of  the  same  by  the 
person  so  furnishing  such  goods,  then  such  person  is  liable  for  the 
goods  so  delivered  in  pursuance  of  such  agreement,  irrespective  of 
such  charge  upon  the  books  of  the  person  so  furnishing  same ;  and 
the  instruction  further  told  the  jury  that,  if  they  believed  from  the 
evidence  that  the  defendant,  Frank  S.  Lusk,  promised  the  plaintiffs, 
or  either  of  them,  that  the  firm  of  D.  D.  Streeter  &  Co.  would  pay 
the  plaintiffs  for  such  goods,  groceries  and  supplies  as  they  might 
thereafter  furnish  to  Carlson  &  Olson,  and  that  the  plaintiffs  there-  . 
after  furnished  to  said  Carlson  &  Olson  the  goods,  groceries  and 
supplies  for  which  this  suit  is  brought,  and  that  the  plaintiffs  gave 
the  credit  to,  and  held,  the  defendants  for  the  payment  of  the  same, 
and  intended  to  charge  them  with  the  same,  then  the  defendants  ' 
would  be  liable  in  this  action,  even  though  in  plaintiffs'  books  the 
goods  were  charged  to  "Carlson  &  Olson  and  Streeter  &  Co."  The 
fact  that  the  goods  are  charged  upon  the  seller's  books  to  the  third 
person,  to  whom  they  are  furnished,  and  the  fact  that  the  bill  for  the 
goods  is  sent  to  such  third  person  are  of  importance  in  determining 
whether  the  liability  of  the  promisor  is  primary  or  secondary,  but 
such  facts  are  not  themselves  conclusive  upon  the  question.  Un- 
doubtedly, where  the  question  involved  is  whether  the  promise  is 
original  or  collateral,  the  test  is  whether  the  credit  is  given  to  the 
person  sought  to  be  charged,  or  to  some  one  else.  (Geary  v.  O'Neil, 
supra ;  Schoenfeld  v.  Brown,  supra ;  1  Reed  on  Statute  of  Frauds, 
§  85;  Browne  on  Statute  of  Frauds,  §§  197a,  198;  8  Am.  &  Eng. 
Ency.  of  Law,  p.  679.) 

If  plaintiff's  books  show  that  the  defendant  was  not  originally 
debited  there,  but  that  the  goods  were  charged  against  the  person 
receiving  them,  this  fact,  if  unexplained  by  other  circumstances, 
would  be  strong  evidence  going  to  show  that  credit  was  given  to  the 
person  receiving  the  goods  (Boykin  v.  Dohlonde,  supra)  ;  but  it  is 
not  conclusive  evidence  of  such  fact.  (1  Reed  on  Statute  of  Frauds, 
§  90 ;  Ruggles  v.  Gatton,  supra ;  Green  v.  Burton,  59  Vt.  424 ; 
Walker  v.  Hill,  119  Mass.  249;  Boykin  v.  Dohlonde,  supra.)  In 
Ruggles  v.  Gatton,  supra,  we  said :  "And  [the  fact  that  they  were 
charged  to  the  persons  who  purchased  them  is  strong  evidence  that 
the  credit  was  given  to  such  persons,  but  is  not  conclusive.  It  might 
be  rebutted  by  other  evidence  of  a  more  convincing  character,  and 
this  is  a  question  for  the  consideration  of  the  jury,  to  be  determined 
from  all  the  circumstances  of  the  case."  In  Reed's  work  on  the 
statute  of  frauds  (Vol.  1,  §  91)  it  is  said:  "Where  the  entries  in 
12— De  Witt. 


178  THE    STATUTE   OF   FRAUDS 

the  books  showed  a  charge  against  the  third  party,  but  the  other 
evidence  in  the  case  an  original  liability  on  the  defendant's  part,  it 
is  a  question  for  the  jury." 

Moreover,  such  a  charge  to  the  person  receiving  the  goods  may 
be  made  for  the  purpose  of  preventing  confusion,  where  the  prom- 
isor has  bought  goods  on  his  own  account,  as  well  as  made  a  promise 
to  pay  for  goods  delivered  to  another.  (1  Reed  on  Statute  of 
Frauds,  §  91 ;  Hazen  v.  Bearden,  4  Sneed  49 ;  Boykin  v.  Dohlonde, 
supra.)  In  the  case  at  bar  it  appears  that  appellees  had  an  account 
against  Streeter  &  Co.,  the  appellants  here,  for  goods  sold  directly 
to  them,  and  also  an  account  against  Lusk  &  Co.,  a  firm  which  seems 
to  have  been  composed  of  the  same  persons  who  composed  the  firm 
of  Streeter  &  Co.  In  addition  to  these  accounts,  the  appellees  had 
an  account  against  Streeter  &  Co.  for  goods  which  they  furnished 
at  the  request  of  Streeter  &  Co.  to  Carlson  &  01som_Hence,  the 
charge  upon  the  books  to  "Carlson  &  Olson  and  StTe^eter^FCo."  of 
the  latter  account  may  have  been  for  the  purpose  of  convenience  and 
to  prevent  the  confusion  of  the  different  accounts.  The  charge 
made  against  "Carlson  &  Olson  and  Streeter  &  Co."  together  may 
have  been  for  the  purpose  of  identifying  that  account,  and  to  pre- 
vent it  being  mistaken  for  the  account  against  Streeter  &  Co:  alone. 
For  these  reasons  we  are  of  the  opinion  that  the  instruction  com- 
plained of  was  not  erroneous  in  telling  the  jury  that  the  charge 
against  "Carlson  &  Olson  and  Streeter  &  Co."  was  not  material,  if 
they  believed  from  the  evidence  that  the  appellees  actually  gave 
credit  to  the  appellants. 

The  instruction  in  question  is  also  complained  of -by  the  appel- 
lants, upon  the  ground  that  it  uses  the  words  "intended  to  charge 
them  with  the  same."  Appellants  contend  that  the  intention  of  the 
appellees  in  regard  to  the  matter  was  immaterial,  and  that,  there- 
fore, it  was  error  to  call  the  attention  of  the  jury  to  the  question  of 
intention.  We  do  not  think  that  the  instruction  was  erroneous  in 
this  regard.  "It  is  always  a  question  of  intention,  whether  charging 
the  goods  to  the  person  receiving  them  proves  that  the  credit  was 
given  him."  (1  Reed  on  Statute  of  Frauds,  §  91  ;  Green  v.  Burton, 
supra;  Bishop  on  Contracts,  §  1260;  3  Parsons  on  Contracts — 8th 
ed. — marg.,  p.  21,  and  notes;  Boykin  v.  Dohlonde,  supra;  Sandord 
v.  Howard,  29  Ala.  691 ;  1  Reed  on  Statute  of  Frauds,  §  96.) 

Judgment  affirmed. 

Accord:  Swift  v.  Pierce,  95  Mass.  136;  Newton  Grain  Co.  v.  Pierce,  106 
Mo.  App.  200,  80  S.  \V.  268;  Gallagher  v.  McBride,  66  N.  J.  L.  360,  49  Atl. 
582 ;  Kesler  &  Dodson  v.  Cheadle,  12  Okla.  489,  72  Pac.  367 ;  Foster  v.  Persch, 
68  N.  Y.  400. 


JOINT    LIABILITY  179 


SECTION  5.  JOINT  LIABILITY  WITH  THE  PRINCIPAL 

DEBTOR 

JOHN  GIBBS  AND  ANOTHER  v.  IRA  BLANCHARD 
15  Mich.  292  (1867). 

Christiancy,  J. :  The  main  question  in  this  case  is  whether  the 
promise  of  Gibbs  (one  of  the  defendants  below)  comes  within  the 
second  clause  of  the  second  section  of  our  statute  of  frauds,  as  a 
"special  promise  to  answer  for  the  debt,  default,  or  misdoings"  of 
Daily,  the  other  defendant. 

The  declaration  contains  a  special  count  upon  the  contract,  and 
the  common  counts  for  goods  sold  and  delivered.  The  special 
count  sets  forth  that  "in  consideration  that  said  plaintiff  agreed  to 
sell  to  the  said  Daily  a  certain  horse  which  the  plaintiff  then  and 
there  had,  of  the  value  of  sixty  dollars  (the  defendants?)  under- 
took and  promised  the  said  plaintiff  to  make,  sign  and  deliver  then- 
promissory  note  to  said  plaintiff  or  bearer  in  the  sum  of  sixty  dol- 
lars for  the  purchase-price  of  said  horse,  which  said  promissory  note 
was  to  be  payable  thereafter  in  six  months  from  date."  It  further 
alleges  that  the  plaintiff,  relying  upon  said  promise  of  said  defend- 
ants and  in  consideration  thereof,  did  sell  and  deliver  the  horse  to 
said  John  Daily  for  the  price  of  sixty  dollars.  The  breach  alleges 
the  failure  and  refusal  to  make  and  deliver  the  note,  as  well  as  the 
refusal  to  pay  the  money. 

~Tt  is  clear,  from  the  evidence,  that  the  horse  was  bought  for  .the 
benefit  of,  and  delivered  to,  Daily,  and  that  the  plaintiff  would  not 
have  sold  the  horse  on  the  credit  of  Daily  alone.  But  upon  the 
question  whether  Daily  and  Gibbs  wrere  to  give  a  joint  note,  or 
whether  the  latter  was  only  to  inaorse  the  note  of  the  former,  or  to 
become  his  guarantor,  the  evidence  was  conflicting. 

There  was  evidence  from  which  the  jury  might  have  found  a  joint 
promise,  or  in  other  words  a  promise  by  both  to  execute  and  deliver 
to  the  plaintiff  a  joint  note  for  the  price :  and  from  the  circum- 
stances and  subsequent  acts  of  the  parties  the  jury  might  have  been 
authorized  to  find  that  the  note  was  to  be  made  payable  in  six 
months ;  though  they  might  also  have  found  that  no  particular  time 
Avas  mentioned  or  expressly  agreed  upon  for  which  the  note  was 
to  run. 

The  evidence  tending  to  show  that  the  promise  was  joint,  or  that 
a  joint  note  was  to  be  given,  was  substantially  this  :  Gibbs  and  Daily 
called  upon  the  plaintiff  together,  and  Gibbs  asked  plaintiff  if  he 
wanted  to.  sell  his  mare.  Plaintiff  said  he  did.  Gibbs  inquired  the 
price,  and  being  told  sixty  dollars,  wanted  to  know  if  plaintiff 
would  take  Daily's  note  if  he,  Gibbs,  would  sign  it  and  see  it  paid; 


-^f. 


180  THE  STATUTE  OF  FRAUDS 

to  this  plaintiff  assented.  The  mare  not  being  present,  and  Gibbs, 
being  anxious  to  get  home,  said  Daily  might  go  with  plaintiff  and  see 
the  mare,  and  if  the  mare  suited  him  he  might  fetch  her  back  with 
him  and  draw  up  a  note  and  Daily  might  sign  it,  and  the  first  time 
he,  Gibbs,  went  to  town  he  would  sign  it.  The  mare  was  delivered 
to  Daily,  who  signed  a  note  for  it  at  six  months,  which  was  after- 
ward indorsed  by  Gibbs  on  Sunday.  This  note  was  produced  on 
the  trial  and  tendered  back  to  defendants. 

The  court  charged  the  jury  that  "if  it  was  the  understanding  of 
the  parties  that  Daily  was  the  purchaser,  and  that  he  should  give 
his  note  to  the  plaintiff  for  the  price,  and  that  Gibbs  should  so  sign 
as  only  to  be  liable  as  indorser,  the  plaintiff  must  fail.  If,  how- 
ever, the  understanding  of  the  parties  was,  at  the  time,  that  Gibbs 
and  Daily  were  the  buyers  of  the  mare,  and  that  both  were  to  be 
liable  as  purchasers  for  the  purchase-price,  and,  accordingly,  should 
become  joint  makers  of  a  promissory  note  for  its  payment,  though 
Daily  was  less  relied  upon  by  the  plaintiff  than  Gibbs,  and  though, 
in  point  of  fact,  it  was  understood  that  the  mare,  when  bought, 
should  belong  to  Daily,  the  plaintiff  is  entitled  to  recover.  That 
the  principle  in  this  class  of  cases  is,  that  if  the  agreement  be  such 
that  two  persons,  in  the  purchase  of  goods,  do  at  the  same  time  be- 
come codebtors  to  the  seller  for  the  price,  then  both  are  purchasers, 
and  the  case  is  not  within  the  Statute  of  Frauds,  and  no  mem- 
orandum in  writing  is  necessary.  But  if  it  be  such  that  one,  at  the 
time,  becomes  debtor  to  the  seller,  and  the  other  security  only  for 
the  debt,  it  is  within  the  Statute  of  Frauds,  and  the  undertaking  of 
the  security  is  void  unless  a  memorandum  of  it  in  writing  is  made." 

Though  the  question  is  one  requiring  some  accuracy  of  discrimi- 
nation, I  have  come  to  the  conclusion,  after  a  careful  examination 
of  the  authorities,  that  the  charge  of  the  court  was  not  only  correct, 
but  that  it  expresses  the  true  rule  of  law  applicable  to  the  question 
with  remarkable  clearness. 

No  question  can  arise  as  to  the  sufficiency  of  the  consideration 
for  the  undertaking  of  Gibbs,  whether  original  or  collateral,  within 
or  without  the  statute.  Without  his  promise,  the  plaintiff  would  not 
j  have  parted  with  his  property.  The  consideration,  therefore,  is 
equally  as  good  in  law  as  a  sale  of  the  horse  to  him  alone  would  have 
been  for  his  sole  promise  to  pay  the  price. 

The  plain,  ordinary  meaning  of  the  language  used  in  this  clause 
of  the  statute  would  seem  sufficiently  to  indicate  that  the  class  of 
special  promises  required  to  be  in  writing  includes  only  such  as  are 
secondary  or  collateral  to,  or  in  aid  of  the  undertaking  or  liability 
of  some  other  party  whose  obligation,  as  between  the  promisor  and 
promisee,  is  original  or  primary.  If  there  be  no  such  original  or 
primary  undertaking  or  liability  of  another  party,  there  is  nothing 
to  which  the  promise  in  question  can  be  secondary  or  collateral, 
and  the  promise  is,  therefore,  original  in  its  nature,  and  not  within 


JOINT    LIABILITY  181 

the  statute.  In  other  words,  the  statute  applied  only  to  promises 
which  are  in  the  nature  of  guarantees  for  some  original  or  primary  - 
obligations  to  be  performed  by  another.  This  has  been  settled  by  a 
remarkably  uniform  course  of  decision  since  the  passage  of  the 
statute — 29  Car.  2,  ch.  3,  p.  4 — which  does  not  essentially  differ  from 
our  own  and  those  of  most  of  the  states  of  the  Union.  So  nu- 
merous and  so  uniform  have  been  the  decisions  upon  this  point,  that 
it  would  savor  of  affectation  to  cite  them.  They  will  be  found  cited 
in  most  of  the  elementary  treatises.  See  Brown  on  Stat.  Frauds, 
ch.  10;  Chitty  on  Cont.,  p.  442  et  seq. ;  2  Pars,  on  Cont.,  4th  ed.,  301. 
And  though  the  terms  original  and  collateral  have  been  criticized, 
yet  when  used,  the  one  to  mark  the  obligation  of  the  principal  debtor, 
the  other  that  of  the  person  who  undertakes  to  answer  for  such 
debt,  they  are  strictly  correct,  and  give  the  true  view  of  this  clause  , 
of  the  statute.  Mallory  v.  Gillett;  Brown  on  Stat.  Frauds,  ch.  10, 
p.  192. 

As  a  result  of  this  principle,  that  one  must  be  held  originally  or 
primarily,  and  the  other  only  collaterally,  or  in  default  of  the  former, 
it  follows  that  the  statute  only  applies  to  such  promises  made  in  be- 
half or  for  the  benefit  of  another,  as  would,  if  valid,  create  a  distinct 
and  several  liability  of  the  party  thus  promising,  and  not  a  joint  lia- 
bility with  the  party  in  whose  behalf  it  is  made.  For  if  one  be 
bound  in  the  first  instance  and  at  all  events,  and  the  other  only  con- 
tingently, or  on  default  of  the  first,  the  liability  could  not  be  joint. 
On  the  other  hand,  if  the  promise  or  the  obligation  of  the  two  be 
joint,  as  between  them,  on  the  one  side  and  the  promise  on  the 
other,  then  neither  is  collateral  to  the  other ;  and  such  joint  promise 
is  original  as  to  both.  Hence  it  has  been  held  in  England  that  an 
agreement  to  convert  a  separate  into  a  joint  debt  is  not  within  the 
statute,  the  effect  being  to  create  a  new  debt,  in  consideration  of  the 
former  being  extinguished.  Ex  parte  Lane,  1  De  Gex,  300;  Brown 
on  Stat,  of  Frauds,  193. 

Where  the  question  arises  (as  it  has  in  almost  all  the  cases),  as 
one  of  the  several  liability  of  the  party  promising  in  behalf  of  an- 
other (as  for  the  price  of  goods  sold  to  another),  the  true  rule  un- 
doubtedly is,  that  if  the  latter  (to  whom  the  goods  are  sold)  be  lia- 
ble at  all,  then  the  promise  of  the  former  is  collateral,  and  must  be 
in  writing;  because,  from  the  very  nature  of  such  a  case,  the  party 
to  whom  the  goods  are  sold,  and  in  whose  behalf  the  promise  is 
made,  is  the  principal  debtor;  and  because  it  would  be  manifestly 
unreasonable  to  hold  that  both  were  in  such  cases  severally  liable 
as  principals,  as  upon  several  original  undertakings  at  the  same 
moment.  See  Hetfield  et  al.  v.  Dow,  3  Dutcher  440 ;  Dixon  v.  Fra- 
zee,  1  E.  D.  Smith,  32.  And  this  rule  applies  equally  when  the 
promise  is  made  in  reference  to  a  pre-existing  liability  of  another,  if 
the  plaintiff  in  accepting  the  promise  does  not  release  the  principal. 
In  reference  to  all  such  cases  the  authorities  may  be  said  to  be  en- 


182  THE  STATUTE  OF  FRAUDS 

tireiy  uniform.  But  the  rule  thus  established  as  to  cases  where  the 
question  is  one  of  the  several  liability  of  the  party  making  the  spe- 
cial promise,  can,  I  think,  have  no  application  to  the  question  of  a 
joint  liability  upon  a  joint  promise  of  the  two.  The  only  intimation 
to  the  contrary  which  I  have  seen  is  to  be  found  in  a  dictum  of 
Judge  Catron  in  Matthews  v.  Milton,  4  Yerg.  576,  a  case  in  which 
no  such  question  was  involved,  there  being  no  evidence  tending  to 
show  a  joint  promise.  To  say  that  when  the  party  originally  owing 
the  debt,  or  for  whom  goods  are  purchased  and  to  whom  they  are  de- 
livered, is  liable  at  all,  no  other  person  can  be  held  severally  liable 
unless  the  promise  be  in  writing,  is  merely  saying  that  such  promise 
is  collateral,  and  therefore  within  the  statute.  But  to  say  that  they 
can  not  both  become  jointly  liable  upon  their  joint  promise,  not  in 
writing,  to  pay  such  debt  or  the  price  of  such  goods,  if  the  party 
originally  owing  the  debt  or  receiving  the  goods  be  at  all  liable,  is 
but  another  form  of  declaring  that  it  is  not  competent  for  both  to 
become  original  promisors,  as  between  them  and  the  promisee,  unless 
both  are  under  an  equal  obligation,  as  between  themselves,  for  the 
ultimate  payment  of  the  debt.  Such  a  proposition,  it  seems  to  me, 
can  not  be  maintained  either  upon  principle  or  authority.  Such 
an  objection  to  a  joint  promise  seems  rather  to  have  reference  to 
some  supposed  defect  of  consideration  (a  question  entirely  distinct 
from  the  statute)  than  to  the  promise.  And,  if  the  party  prom- 
ising jointly  with  another  to  whom  goods  are  furnished,  can  not 
be  bound  jointly  with  the  latter,  because  as  between  the  two  prom- 
isors, he,  not  having  received  the  goods,  is  under  no  obligation  to 
pay ;  then  the  same  reason  ought  to  operate  with  still  greater  force 
against  his  several  promise  to  pay  the  whole  price  of  goods  received 
by  the  other.  But  the  law  in  the  latter  case  is  well  settled  the 
other  way. 

It  is  very  correctly  remarked  by  Whelply,  J.,  in  Hetfield  et  al.  v. 
Dow,  above  cited,  that,  "to  settle  the  rights  of  promisors  inter  sese, 
to  ascertain  as  between  them  who  is  to  pay  the  debt  ultimately,  is  no 
part  of  the  object  of  the  act.  It  by  no  means  follows  that  he  who 
by  the  arrangement  between  the  promisors  ultimately  may  be  bound 
to  pay  the  debt  is,  as  to  the  promisee,  the  principal  debtor.  That 
does  not  concern  him."  This  view,  it  seems  to  me,  rests  upon  sound 
reasons — reasons  which  must  naturally  enter  into  the  consideration 
of  business  men,  in  the  ordinary  transactions  of  business.  LWhejie 
a  party  has  been  willing  to  put  himself  in  the  position  of  an  original 
promisor  (either  jointly  or  severally)  to  a  vendor  for  goods  pur-, 
chased  from  the  benefit  of,  or  delivered  to  another,  the  vendor  has 
a  right  conclusively  to  presume  that  such  relations  or  arrangements 
exist  between  the  two  as  to  make  it  the  duty  of  the  party  or  parties 
promising,  as  between  themselves,  to  pay  according  to  the  promise./ 
And  to  allow  the  contrary  to  be  shown  to  defeat  the  promise,  would 
operate  as  a  fraud  upon  the  vendor. 


JOINT    LIABILITY 


183 


10 


The  question  of  a  joint  promise  appears  to  have  been  seldom 
raised  for  adjudication  in  connection  with  the  statute  of  frauds  ; 
but  the  following  cases  fully  sustain  the  proposition  that  a  joint 
promise  of  two,  whether  to  pay  the  pre-existing  debt  of  one  of  them 
and  the  promisee,  and  valid  without  writing.  Ex  parte  Lane,  1  De 
Gex  300;  Wainwright  v.  Straw,  15  Vt.  215;  Stone  v.  Walker,  13 
Gray  613  ;  and  Hetfield  v.  Dow,  3  Dutcher  440.  See  also  by  analogy, 
Batson  v.  King,  4  H.  &  N.  739.  The  same  doctrine  is  laid  down  by 
Mr.  Brown  in  his  able  treatise  on  the  Statute  of  Frauds,  ch.  10, 
p.  197. 

It  is  true  that  in  Wainwright  v.  Straw,  which  most  resembles  the 
present  case,  the  decision  is  placed  in  part  upon  the  ground  that  the 
sale  was  made  to  both.  The  facts  were  that  Straw  and  Cunning- 
ham both  went  to  plaintiff's  store  and  said  they  wished  to  buy  a 
stove  for  Straw,  but  that  both  would  be  responsible.  Now  I  can 
see  no  difference  in  legal  effect  between  the  case  where  A  and  B 
say  to  a  merchant,  "We  want  to  buy  a  stove  for  B,  and  both  of 
us  will  be  responsible ;"  and  the  case  where  A  says,  "B  wishes  to 
purchase  a  stove,  but  we  will  both  be  responsible."  Substantially, 
the  transaction  is  the  same ;  in  both  cases  alike  it  is  a  sale  for  the 
benefit  of  the  one  on  the  joint  credit  of  the  two,  and  the  real  question 
in  both  cases  is,  whether  the  credit  was  given  to  both  jointly.  1 
do  not  think  the  court,  in  Wainwright  v.  Straw,  baseB  tHeir  de- 
cision upon  the  narrow  and  merely  verbal  ground  of  the  use  of  the 
first  person  plural,  showing  merely  who  wanted  the  stove,  but  upon 
the  broad  ground  above  stated,  that  it  was  sold  upon  their  joint 
credit.  And  in  all  such  cases  where  the  sale  is  upon  the  joint  credit 
and  promise  of  the  defendants,  though  the  property  is  purchased 
for,  and  is  delivered  to,  but  one  of  them,  I  think  the  legal  effect  of 
the  transaction  constitutes,  as  between  them  and  the  vendor,  a  sale 
to  the  two  jointly.  The  sale  as  between  the  vendor  and  the  vendee, 
is  to  the  party  or  parties  to  whom  the  credit  is  given  for  the  price, 
without  reference  to  the  question  for  whose  use  it  is  purchased, 
or  whom,  as  between  the  promisors,  is  to  be  its  owner  when  bought. 

This  brings  us  to  another  point  in  the  case.  Th_e  sale  (if  upon 
the  joint  credit  and  promise  of  the  defendants)  was  a  joint  sale  to 
both,  as  between  them  and  the  plaintiff.  But  in  the  special  count  of 
the  declaration  it  is  alleged  as  a  sale  to  Daily  alone.  The  plaintiff 
can  not  therefore  recover  upon  tHe  special  count. 

But  upon  the  count  for  goods  sold  and  delivered,  the  sale  having 
been  made  to  both,  the  plaintiff  would  be  entitled  to  recover,  if 
the  facts  be  such  as  would  warrant  a  recovery  upon  a  sale  made  for 
the  joint  benefit  of,  and  the  property  delivered  to,  both. 

I  think  there  was  no  error  in  the  charge  or  proceedings  of  the 
court  below,  and  that  the  judgment  should  be  affirmed,  with  cost-. 

Cooley,  J.,  and  Campbell,  J.,  concurred. 


184  THE    STATUTE    OF    FRAUDS 

Accord  :    Boyce  v.  Murphv,  91  Ind.  1,  46  Am.  Rep.  567 ;  Hetfleld  v.  Dow,  27 
N.  J.  L.  440. 

Contra:   Matthews  v.  Milton,  4  Yerg.  (Tenn.)  576,  26  Am.  Dec.  247. 


SECTION  6.    DISCHARGE  OF  THE  ORIGINAL  DEBTOR 

EZRA  B.  BOOTH,  RESPONDENT,  v.  JEREMIAH  EIGHMIE," 

APPELLANT 

60  N.  Y.  238,  19  Am.  Rep.  171  (1875). 

This  was  an  action  to  foreclose  defendant's  equity  of  redemption 
in  certain  railroad  bonds  alleged  to  have  been  pledged  by  defendant 
for  the  sale  thereof,  and  for  judgment  against  defendant  for  any 
i   deficiency. 

The  court  found  the  following  facts  in  substance : 

In  January,  1869,  plaintiff  held  a  deed  of  certain  real  estate  exe- 
cuted to  him  by  one  Mrs.  Collins,  which,  although  absolute  on  its 
face,  was  intended  as  security  for  a  debt  of  about  $9,000.  An 
agreement  was  entered  into  between  the  parties  by  which  plaintiff 
agreed  to,  and  did,  convey  the  lands  to  Mrs.  Collins  upon  the  de- 
fendant depositing  with  him  certain  first  mortgage  bonds  of  the 
Dutchess  and  Columbia  Railroad  Company,  amounting  at  par  to 
about  the  amount  of  the  debt,  and  upon  defendant's  agreeing  to  re- 
deem said  bonds  at  par  within  one  year.  Defendant  failed  to  redeem 
the  bonds  as  agreed. 

The  court  held  that  plaintiff  was  entitled  to  the  relief  demanded  in\ 
the  complaint,  i.  e.,  a  sale  of  the  bonds  and  a  judgment  against  de- 
fendant for  any  deficiency.    Judgment  was  entered  accordingly.        / 

Miller,  J. :  By  the  Statute  of  Frauds,  any  promise  to  answer 
for  the  debt,  default  or  miscarriage  of  another  is  void,  unless  the 
same  be  in  writing  and  subscribed  by  the  party  to  be  charged  there- 
with.    (2  R.  S.  136,  p.  2.) 

One  Mrs.  Collins  was  a  debtor  to  the  plaintiff,  the  debt  being  se- 
cured by  a  deed  of  certain  real  estate  absolute  upon  its  face,  but 
actually  intended  as  a  mortgage.     Mrs.  Collins  being  desirous  of 
paying  said  indebtedness,  and  obtaining  a  conveyance  of  the  land, 
at  the  request  of  the  defendant,  the  plaintiff  conveyed  the  land  to  | 
Mrs.  Collins,  in  consideration  of  which  the  defendant  deposited  and  \ 
delivered,   in   pledge   to   secure   the   indebtedness,   certain    railroad 
bonds,  which  he  agreed,  within  one  year  thereafter,  to  redeem  at  J 
par,  by  paying  the  principal  and  interest  which  they  represented.      p 

The  question  to  be  determined  is  whether  the  promise  of  the  de-  ' 
fendant  was  void  by  the  Statute  of  Frauds.     The  authorities  upon 
the  subject  are  numerous,  but  the  later  decisions  have,  to  a  great 
extent,   established  certain  general  rules  which  are  in  most  cases 


, 


Vu>- 

DISCHARGE    OF    ORIGINAL   DEBTOR  1S5 

applicable  and  controlling.  The  tests  to  be  applied  under  the  stat- 
ute in  every  case,  is  whether  the  party  sought  to  be  charged  is  the 
principal  debtor  primarily  liable,  or  whether  he  is  only  liable  in  case  <r 
of  the  default  of  a  third  person ;  in  other  words,  whether  he  is  the 
debtor  or  whether  his  relation  to  the  creditor  is  that  of  surety  to 
him  for  the  performance,  by  some  other  person,  of  the  obligation 
of  the  latter  to  the  creditor.  (Brown  v.  Weber,  38  N.  Y.  187.) 
There  is,  I  think,  no  sufficient  ground  for  claiming  that  the  promise 
of  the  defendant  was  given  or  accepted  as  collateral  to  the  demand 
which  the  plaintiff  held  against  Mrs.  Collins,  or  in  default  of  her  . 
paying  the  same.  There  was  no  such  condition  made  in  the  agree-  ' 
ment,  and  it  is  not  to  be  inferred  from  the  facts  presented.  It  was 
not  a  promise  to  become  liable  as  surety  for  the  debt  of  another,  or 
collateral  to  the  original  indebtedness.  That  indebtedness  had  been 
fully  discharged  by  the  conveyance  of  the  land  by  the  plaintiff  to 
Mrs.  Collins,  and  it  is  in  no  way  apparent,  nor  can  it  be  properly 
assumed  that  the  plaintiff  could  enforce  his  claim  against  her.  The  • 
test  is,  whether  the  plaintiff  could  have  maintained  an  action  against 
her  for  the  demand  which  was  paid  by  a  conveyance  of  the  land  and 
acceptance  of  the  bonds.  No  such  element  entered  into  the  agree- 
ment, either  upon  the  execution  of  the  conveyance  or  the  delivery 
of  the  bonds;  nor  is  it  to  be  presumed  from  the  circumstances  sur- 
rounding the  case.  An  action  brought  for  such  a  purpose  would  be 
without  any  evidence  to  support  it,  and  must  inevitably  fail.  The 
plaintiff  had  entirely  relinquished  his  claim  upon  the  land,  as  well 
as  against  the  original  debtor,  and  the  defendant  entered  into  an 
independent  obligation  to  secure  or  pay  the  debt.  The  case  was  not  I 
that  of  a  creditor  who  releases  a  security  without  extinguishing  the 
debt,  but  was  a  relinquishment  of  the  debt  against  the  debtor  without 
having  and  without  reserving  any  right  whatever  to  pursue  a  remedy 
against  the  debtor. 

In  my  opinion,  there  is  no  valid  ground  for  claiming  that  there 
was  no  sufficient  consideration  to  support  the  promise.  By  the  con- 
veyance of  the  lands  to  Mrs.  Collins  the  plaintiff  gave  up  a  security 
on  real  estate  which,  we  are  authorized  to  assume,  was  ample,  and 
took  defendant's  promise  with  the  bonds,  the  market  value  of  which 
was  fifteen  per  cent,  below  par.  He  also  released  the  debtor  from 
personal  liability,  and,  without  the  benefit  of  the  defendant's  promise, 
he  no  doubt  would  have  been  subjected  to  loss  upon  the  sale  of  the 
bonds.  Here  was  an  injury  to  follow  by  reason  of  a  failure  to  ful- 
fil the  promise,  and  the  defendant  also  was  benefited  by  obtaining 
a  lien  upon  the  lands  conveyed  to  Mrs.  Collins,  by  means  of  security 
taken,  and  a  mortgage  which  she  executed  to  him,  as  well  as  by  a 
right  to  develop  these  lands.     (2  Parsons  on  Con.  (5th  ed.),  7.) 

The  case  of  Mallory  v.  Gillett  (21  N.  Y.  412),  is  cited  by  the 
counsel  on  both  sides,  and  I  do  not  discover  any  doctrine  laid  down, 
or  principle  asserted,  which  conflicts  with  the  rules  already  referred 


186 


TILE    STATUTE    OF    FRAUDS 


to  as  bearing  upon  cases  of  this  character.  In  that  case  the  plaintiff 
had  possession  of  a  canal  boat,  upon  which  he  had  a  lien  for  re- 
pairs, and  delivered  it  to  a  third  person,  at  the  defendant's  re- 
quest, upon  his  verbal  promise  that  he  would  pay  the  amount  due 
for  such  repairs,  and  it  was  held,  there  being  no  consideration 
moving  to  the  defendant,  that  his  promise  was  void  under  the 
statute  of  frauds.  There  is  a  marked  distinction  between  the  case 
cited  and  the  one  at  bar.  In  the  case  cited,  the  plaintiff  never  re- 
linquished or  extinguished  his  claim  against  the  original  owner  for 
the  repairs,  while  here  it  was  completely  surrendered.  Besides, 
there  was  no  valid  consideration  for  the  promise,  and  it  was  collat- 
eral to  the  original  debt,  which  was  still  in  force,  and  for  the  collec- 
tion of  which  there  was  an  adequate  and  ample  remedy.  It  is  said, 
in  the  prevailing  opinion  in  this  case,  that  among  the  cases  which  \ 
are  not  held  to  be  within  the  statute,  are  those  '/where  the  original 
debt   becomes    extinguished,    an=^  the  .-creditor   has    only    the    new 


promise  to  rely  upon."  \  The  case  at  bar  may,  I  think,  be  considered 
as  embraced  within  this  rule,  as  we  have  seen  that  the  plaintiff  could 
only  rely  upon  the  agreement  made  with  the  defendant  to  obtain 
payment  of  her  entire  demand. 

The  judgment  must  be  affirmed  with  costs. 

All  concur,  except  Allen  and  Folger,  JJ.,  dissenting;  Church, 
Ch.  J.,  not  sitting. 

Judgment  affirmed. 

Accord:  Lakeman  v.  Mountstephen,  L.  R.  7  H.  L.  17;  Goodman  v.  Chase. 
1  Barn.  &  Aid.  297;  Carlisle,  Jones  &  Co.  v.  Campbell,  76  Ala.  247;  Whitte- 
more  v.  Wentworth,  76  Maine  20;  Andre  v.  Bodman.  13  Md.  241,  71  Am.  Dec. 
628;  Harris  v.  Jones,  140  Ga.  768,  79  S.  E.  841;  Sheppard  v.  Newton,  139  N. 
Car.  533,  52  S.  E.  143. 

The  verbal  promise  of  A  to  pay  the  debt  of  B,  if  C  will  discontinue  a  suit 
for  its  recovery,  then  pending  against  B,  and  a  discontinuance  of  the  suit  in 
consideration  of  that  promise,  will  not  sustain  a  recovery  by  C  against  A. 
Duffy  v.  Wunsch,  42  N.  Y.  243,  1  Am.  Rep.  514;  Fish  v.  Hutchinson,  2  Wils. 
(Eng.)  94. 


SECTION  7.    CONSIDERATION  BENEFICIAL  TO  THE 

PROMISOR 

WILLIAMS  v.  LEPER  " 

3  Burr.  1806  (1766). 


\ 


One  Taylor,  a  tenant  to  the  plaintiff,  being  three-quarters  of  a 
year  (which  amounted  to  £45)  in  arrear  for  rent,  and  insolvent, 
conveyed  all  his  effects  for  the  benefit  of  his  creditors.  They  em- 
ployed Leper,  the  defendant,  as  a  broker,  to  sell  the  effects ;  and, 
accordingly,  he  advertised  a  sale.  On  the  morning  advertised  for 
the  sale,  Williams,  the  landlord,  came  to  distrain  the  goods  in  the 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  187 


house.  Leper,  having  notice  of  the  plaintiff's  intention  to  distrain 
them,  promised  to  pay  the  said  arrear  of  rent  if  he  would  desist 
from  distraining;  and  he  did  thereupon  desist. 

At  the  trial  a  verdict  was  found  for  the  plaintiff  for  £45. 

The  question  was  whether  the  verdict  should  be  entered  up  for 
£45  or  for  a  smaller  sum  (£7  5s.),  the  promise  not  having  been 
reduced  to  writing. 

Lord  Mansfield  :     The  evidence  went  further  than  the  declara- 
tion states.     The  declaration   does  not  state  whether  the  promise 
was  in  writing  or  not ;  theevidence  shows  it  was  not.     But  both  are    . 
consistent. 

This  case  has  nothing  to  do  with  the  statute  of  frauds. 

The  res  gesta  would  entitle  the  plaintiff  to  his  action  against  the 
defendant. 

The  landlord  had  a  legal  pledge.  He  enters,  to  distrain  ;  he  has 
tlie^pl^dg-e-irkJiis. .custody.  The  defendant  agrees  "That  the  goods 
shall  be  sold,  and  the  plaintiff  paid  in  the  first  place."  The  goods 
are  the  fund ;  the  question  is  not  between  Taylor  and  the  plaintiff. 
The  plaintiff  had  a  lien  upon  the  goods.  Leper  was  a  trustee  for  all 
the  creditors,  and  was  obliged  to  pay  the  landlord,  who  had  the  prior 
lien.  This  has  nothing  to  do  with  the  statute  of  frauds.  It  is  rather 
a  fraud  in  the  defendant,  to  detain  the  £45  from  the  plaintiff,  who 
has  an  original  lien  upon  the  goods. 

Mr.  Justice  Wilmot  thought  this  case  out  of  the  statute  of 
frauds.    This  is  not  a  collateral  promise  to  pay  the  debt  of  another.  7 

The  case  of  Reid  v.  Nash  does  not  clash  with  the  other  deter- 
mination on  the  statute  of  frauds.  That  was  the  original  undertak- 
ing ;  the  debtor  was  never  liable  for  that  particular  sum  of  £50. 

But  this  case  is  not  within  the  spirit  or  meaning  of  the  act.  The 
tenant  was  here  the  original  debtor.  The  plaintiff  had  two  remedies 
against  him.  The  defendant  made  a  bill  of  sale  of  goods  liable  to 
the  plaintiff's  distress.  The  plaintiff  is  in  possession  of  the  goods, 
having  entered  with  intent  to  distrain  them.  Leper  was  the  agent 
for  the  creditors.  He  makes  this  promise,  in  order  to  discharge  the 
goods  of  this  distress.  I  consider  this  distress  as  being  actually 
made.  Leper  says,  "if  you  will  quit  the  goods  and  disencumber 
the  fund,  I  will  pay  you." 

Leper  became  the  bailiff  of  the  landlord ;  and  when  he  had  sold 
the  goods,  the  money  was  the  landlord's  (as  far  as  £45)  in  his  own 
bailiff's  hands.  Therefore  an  action  would  have  lain  against  Leper 
for  money  had  and  received  to  the  plaintiff's  use. 

Mr.  Justice  Yates  :  It  was  not  necessary  to  state  in  the  dec- 
laration "That  the  promise  was  in  writing." 

This  declaration  states  a  promise  "to  pay  the  arrear  of  rent 
amounting  to  £45"  (a  specific  sum).  The  defendant  was  in  posses- 
sion of  the  goods,  and  about  to  sell  them.  The  plaintiff  entered, 
with  intent  to  distrain  them  for  £45.     The  defendant  says,  "Let  me 


liiii  THE    STATUTE    OF    FRAUDS 

go  on  to  sell  them,  and  I  will  pay  you  the  £45."  He  undertook  to 
pay  this,  in  all  events,  peremptorily  and  absolutely.  This  is  an 
original  consideration  to  the  defendant. 

Therefore  he  concurred  in  being  of  opinion  for  the  plaintiff,  and 
that  the  verdict  should  be  entered  for  the  sum  of  £45. 

Mr.  Justice  Ashton  :  If  this  was  a  promise  to  pay  the  debt  of 
Taylor,  I  should  think  it  within  the  statute,  upon  Sir  Fletcher  Nor- 
ton's distinctions,  which  are  the  true  ones. 

But  I  look  upon  the  goods  here  to  be  the  debtor ;  and  I  think  that 
Leper  was  not  bound  to  pay  the  landlord  more  than  the  goods  sold 
for,  in  case  they  had  not  sold  for  £45. 

The  goods  were  a  fund  between  both,  and  on  that  foot  I  concur. 

But  otherwise  I  should  have  thought  (with  Sir  Fletcher)  "That 
the  case  of  Reid  v.  Nash  does  not  clash  with  the  other  determina- 
tions about  collateral  promises." 

Postea  to  be  delivered  to  the  plaintiff,  and  the  verdict  to  stand 
for  the  whole  £45. 

See  also  Castling  v.  Aubert,  2  East  325;  Houldilch  v.  Milne,  3  Esp.  86; 
Walker  v.  Taylor,  6  C.  &  P.  752 ;  Edwards  v.  Kelly,  6  M.  &  S.  204 ;  Fitzgerald 
v.  Dressier,  7  C.  B.  (N.  S.)  374;  Harburg  India  Rubber  Comb.  Co.  v.  Mar- 
tin (1902),  1  K.  B.  778;  Prime  v.  Koehler,  77  N.  Y.  91;  Westmoreland  v. 
Porter,  75  Ala.  452. 


MAULE  v.  BUCKNELL  ET  AL. 

50  Pa.  St.  39  (1865). 

The  opinion  of  the  court  was  delivered  by  Strong,  J. 

Besides  the  common  counts,  to  support  which  no  evidence  was 
given,  the  declaration  in  this  case  contained  four,  based  upon  a  spe- 
cial contract.  They  aver,  in  substance,  that  the  plaintiff  and  three 
others  named,  were  respectively  stockholders  and  directors  of  the 
Eastern  Market  Company;  that  the  company  was  largely  in  debt 
for  arrears  of  ground  rent,  for  interest  of  mortgages  upon  their  real 
estate,  and  for  sums  due  to  other  creditors,  among  which  was  a  debt 
due  the  plaintiff  of  $50,000,  that,  in  consideration  that  the  plaintiff 
and  his  three  costockholders  and  directors  would  transfer  to  the  de- 
fendants a  portion  of  the  stock  held  by  each  of  them  (the  amount  to 
be  transferred  being  two  hundred  and  thirty  shares  in  all),  and  resign 
their  offices  as  directors,  that  thereupon  and  thereby  the  defendants 
might  become  directors  of  said  company  and  obtain  control  of  its  af- 
fairs, the  defendants  promised  the  plaintiff  and  his  three  costock- 
holders and  directors  named,  to  pay  of  the  said  arrears  of  ground 
rent,  the  interest  on  the  mortgages,  and  the  other  debts  due  by  the 
company.  These  special  counts  then  aver  that  the  plaintiff  and  his 
three  costockholders  and  directors,  relying  upon  the  said  promise  of 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  189 

the  defendants,  did  transfer  to  them  the  shares  of  stock  agreed  to  be 
transferred,  and  resigned  their  offices  as  directors,  whereupon  and 
whereby  the  defendants  became  directors  of  the  company,  but  that 
they  neglected  to  pay  the  debt  of  $50,000  due  from  the  company  to 
the  plaintiff,  and  neglected  to  pay  the  judgments  against  the  com- 
pany, and  its  other  liabilities,  in  consequence  of  which  the  prop- 
/  erty  of  the  company  was  forced  to  sale,  the  debt  due  to  the  plain- 
,  tiff  was  not  paid,  and  his  stock  was  rendered  valueless.  It  was  for 
I  the  breach  of  the  contract  thus  set  out  that  the  action  was  brought. 
^  When  the  case  came  to  trial,  the  plaintiff,  in  order  to  sustain  his 
declaration,  offered  to  prove  by  the  testimony  of  a  witness  the  main 
facts  averred,  to  wit,  the  contract  as  set  out ;  the  condition  of  the 
company,  its  resources  and  debts ;  that  the  plaintiff  was  one  of  its 
stockholders  and  creditors ;  that  he  and  his  three  costockholders 
named  had  each  transferred  to  the  defendant  fifty  shares  of  their 
stock  and  resigned  their  office  as  directors ;  that  the  defendants 
had  thereupon  became  directors  and  obtained  control  of  the  affairs 
of  the  company ;  and  that  they  had  paid  the  arrears  of  ground  rent 
and  interest,  with  two  other  debts  of  the  company,  but  that  they  then 
refused  further  to  perform  their  contract.  To  this  offer  the  defend- 
ants objected,  and  it  was  overruled  by  the  court.  We  have,  there- 
fore, to  consider  whether  the  court  was  right  in  refusing  to  permit 
the  witness  to  testify  to  these  facts. 

Three  reasons  have  been  assigned  during  the  argument  in  sup- 
port of  the  rejection  of  the  proffered  evidence,  either  of  which,  if 
well  founded,  is  sufficient  to  justify  the  action  of  the  court.  The 
first  is,  that  the  contract  declared  on  was  joint;  that  the  alleged 
promise  was  to  the  plaintiff  and  three  other  persons  as  one  party  : 
and  that  the  interests  involved  were  also  joint.  If  this  be  so,  an  ac- 
tion by  one  of  the  promisees  alone  can  not  be  maintained,  and  the 
testimony  of  the  witness,  even  if  received,  could  have  availed  the 
plaintiff  nothing. 

The  second  reason  adduced  for  rejecting  the  plaintiff's  offer  is. 
that  the  contract  was  against  public  policy,  and  therefore  void,  so 
far  as  it  is  executory.  And  the  third  is,  that  the  contract  is  within 
the  statute  of  frauds,  being  an  engagement  to  answer  for  the  debt 
or  default  of  another,  and  not  being  in  writing.  We  do  not  propose 
now  to  consider  all  these  grounds  of  objection  to  the  offer  made  by 
the  plaintiff.  To  do  so  would  be  a  work  of  superfluity,  for  we 
are  of  opinion  that  the  statute  of  frauds  is  an  insuperable  obstacle 
in  the  plaintiff's  way.  His  offer  was  to  prove  a  verbal  contract, 
which  the  law  declares  of  no  force. 

It  must  be  admitted  that  the  cases  respecting  the  application  of 
the  statute  of  frauds  are  greatly  confused  and  irreconcilable  with 
each  other.  Upon  no  subject,  perhaps,  has  there  been  more  diversity 
of  judicial  decision.  The  value  of  the  statute  is  everywhere  ad- 
mitted, and  its  language  is  plain,  but  in  the  supposed  justice  of  a 


190  THE  STATUTE  OF  FRAUDS 

particular  case,  a  court  has  often  lost  sight  of  the  exact  rule  pre- 
scribed by  the  legislature.    As  much  ingenuity  has  been  expended  in 
efforts  to  take  individual  cases  out  of  the  statute  as  was  formerly 
devoted  to  avoiding  the  statute  of  limitations,  and  in  these  ingenious 
efforts  principles  have  been  asserted   which,   if   sound,   practically 
deny  all  effect  to  the  expressed  will  of  the  legislature.     Happily, 
there  are  glimmerings  of  late  of  a  tendency  to  return  to  a  plainer 
reading  of  the  act,  and  to  give  to  it  a  construction  more  consonant 
to  the  apparent  mind  of  the  legislature.     In  this  state  we  have  very 
few  decisions  upon  the  subject,  for  our  statute  has  been  in  exist- 
ence only  since  1855,  but  as  it  is  a  substantial  copy  of  the  British 
statute,  and  those  of  other  states,  the  judgments  of  their  courts  can 
not  be  overlooked.     Without  attempting  any  extended  review  of 
them,  we  think  certain  principles  may  safely  be  considered  as  settled, 
or  if  not  settled,  sustained  by  reason,  and  the  authority  of  the  best 
considered  adjudications.     It  is  not  true,  as  a  general  rule,  that  a 
promise  to  pay  the  debt  of  another  is  not  within  the  statute,  if  it 
rests  upon  a  new  consideration  passing  from  the  promisee  to  the 
promisor.    A  new  consideration  for  a  new  promise  is  indispensable 
without  the  statute,  and  if  a  new  consideration  is  all  that  is  needed 
to  give  validity  to  a  promise  to  pay  the  debt  of  another,  the  statute 
amounts  to  nothing.     Nor  can  it  make  any  difference  that  the  new 
consideration  moves  from  the  promisee  to  the  promisor.  _  The  ob- 
ject of  the  statute  is  protection  against  "fraudulent  practices  com- 
monly endeavored  to  be  upheld  by  perjury,"  and  to  these  all  suits 
upon  verbal  contracts  to  answer  for  another's  debt  or  default  are 
equally  exposed,  no  matter  whence  the  consideration  of  the  con- 
tract proceeded  or  to  whom  it  passed.     Indeed  many  of  the  cases 
hold  that   the   question  always   is,   "what   was   the   promise?"   not 
"what  is  the  consideration?"     In  note   (i)   to  Forth  v.  Stanton.  _1 
William's    Saunders,   211b,   it    is    said:     "The    question   indeed    is, 
'What  is  the  promise?'     Whether  it  be  a  promise  to  answer  for* 
the  debt,  default,  or  miscarriage  of  another,  for  which  that  other  re- 
mains liable,  not  what  the  consideration  for  that  promise  is,  for  it 
is  plain  that  the  nature  of  the  consideration  can  not  affect  the  terms 
of  the  promise  itself  unless,  as  in  the  case  of  Goodman  v.  Chase,  1 
B.  &  A.  297,  it  be  an  extinguishment  of  the  liability  of  the  original 
party."     The   doctrine   of  this  note   is  approved   in   Fitzgerald   v. 
Dressier,  94  Eng.  C.  L.  Rep.  885,  and  with  some  slight  modifications 
it  results  very  palpably  from  the  words  of  the  statute.     In  describ- 
ing the  class  of  cases  in  which  it  is  required  that  the  agreement,  in 
order  to  sustain  an  action,  shall  be  in  writing,  no  reference  is  made 
to  the  consideration.     It  is  the  promise  alone  which  is  mentioned. 
Yet  it  can  not  be  denied  that  there  is  a  class  of  cases  in  which  the 
consideration    has    been    more    regarded   than    the    nature    of    the 
promise.     They  do  not,  however,  rule  that  a  promise  to  pay  the 
debt  of  another  is  not  within  the  statute  merely  because  it  is  founded 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  191 

upon  a  consideration  moving  for  the  creditor  of  that  other  to  the 
promisor.  I  iind  no  approved  cases  holding  that.  They  regard  the 
consideration  as  of  importance  only  where  it  is  either  a  substantial 
transfer  of  the  creditor's  claim  to  the  promisor,  making  the  trans- 
action a  purchase,  or  where  it  is  a  transfer  to  the  promisor  of  a 
fund  for  the  payment  of  the  debt,  or  property  or  securities  charged 
with  its  payment.  If  such  funds  come. to  him  from  either  the  debtor 
or  the  promisee,  his  agreement  to  pay  the  debt  need  not  be  in 
writing;  for,  as  was  said  in  Williams  v.  Leper,  3  Burr  1890,  the 
promise  is  considered  as  not  to  pay  the  debt  of  another,  but  the 
debt  of  the  property  which  has  come  to  his  hands.  In  all  such 
cases  the  promisor  may  be  regarded  as  having  purchased  the  goods 
obtained  by  him  of  the  faith  of  his  promise,  and  his  promise  may 
be  considered  as  an  agreement  to  pay  the  price.  Nelson  v.  Boyn- 
ton,  3  Met.  296. 

It  is  undoubtedly  true  that  a  promise  to  answer  for  the  debt  or  . 
default  of  another  is  not  within  the  statute,  unless  it  be  collateral  to  [ 
a  continued  liability  of  the  original  debtor.  If  it  be  substitute,  an 
arrangement  by  which  the  debt  of  the  other  is  extinguished,  as 
where  the  creditor  gives  up  his  claim  on  his  original  debtor,  and 
accepts  the  new  promise  in  lieu  thereof,  it  need  not  be  in  writing. 
And  as  the  cases  referred  to  show,  it  may  be  unaffected  by  the  stat- 
ute, though  the  original  debt  remains,  if  the  promisor  has  received 
a  fund  pledged,  set  apart,  or  held  for  the  payment  of  the  debt.  But 
except  in  such  cases,  and  others  perhaps  of  a  kindred  nature,  in 
which  the  contract  shows  an  intention  of  the  parties  that  the  new 
promisor  shall  become  the  principal  debtor,  and  the  old  debtor  be- 
come but  secondarily  liable,  the  rule,  it  is  believed,  may  be  safely 
stated,  that  while  the  old  debt  remains,  the  new  must  be  regarded 
as  not  an  original  undertaking,  and  that  it  is  therefore  within  the  . 
statute.  At  least  this  may  be  stated  as  a  principle  generally  accurate. 
In  William's  Saunders,  21  le,  note  1,  it  is  said:  "The  question 
whether  each  particular  case  comes  within  the  clause  of  the  stat- 
ute or  not  depends  not  on  the  consideration  for  the  promise,  but 
on  the  fact  of  the  original  party  remaining  liable,  coupled  with  the 
absence  of  any  liability  on  the  part  of  the  defendant  or  his  prop- 
erty, except  such  as  arises  from  his  express  promise."  The  doctrine 
of  this  note  is  supported  by  very  many  cases,  and  it  is  in  harmony 
with  the  words  of  the  statute.  It  is  incumbent,  then,  upon  him  who 
would  enforce  a  mere  verbal  promise  of  one  to  answer  for  the  debt 
or  default  of  another,  if  the  original  debt  remains,  to  show  that  his 
case  is  one  of  those  that  are  recognized  as  exceptional.  And  it 
will  be  found,  after  examination,  that  in  nearly  all  the  decisions 
in  which  it  has  been  held  that  such  a  promise  is  not  within  the  stat- 
ute there  was  some  liability  of  the  promisor,  or  his  property  inde- 
pendent of  his  express  promise,  or  that  he  has  become  the  actual 
debtor,  so  as  that  between  him  and  the  original  debtor  the  superior 


192  THE    STATUTE   OF   FRAUDS 

liability  was  his.  In  such  cases  the  consideration  for  the  ne\^ 
promise  is  regarded  as  material.  Of  course  I  am  not  speaking  of 
cases  where  the  debt  of  another  is  referred  to  merely  as  the  measure 
of  a  promisor's  liability,  and  in  which  he  is  liable,  whether  that  debt 
is  paid  or  not.  All  of  our  own  cases  are  in  harmony  with  these 
principles.  In  Shoemaker  v.  King,  4  Wright  110,  it  was  said  by 
Chief  Justice  Lowrie  that  "while  the  old  debt  remains,  the  new  con- 
tract can  not  be  a  substituted,  but  only  a  collateral  one,  a  promise  tc 
pay  another's  debt,  and  it  is  forbidden  by  the  statute  as  a  cause  of 
action."  "Yet,"  said  he,  "we  must  not  be  understood  as  questioning 
that  large  class  of  cases  where  a  debtor  puts  money  or  other  means 
into  the  hands  of  another  to  be  delivered  to  a  particular  creditor  of 
his,  and  the  creditor  has  been  held  to  be  entitled  to  sue."  Whether 
the  facts  of  that  case  did  not  bring  it  within  one  of  the  recognized 
exceptions  to  the  rule  that  a  promise  must  be  regarded  as  merel) 
collateral  and  within  the  statute  while  the  old  debt  remains,  we  need 
not  now  inquire.  We  refer  to  it  only  as  asserting  the  doctrine. 
Malone  v.  Keener,  8  Wright  107,  was  a  case  in  which  the  defend- 
ants, being  indebted  to  the  plaintiff,  assigned  to  him  a  note  of  a 
third  party  with  a  parol  guaranty.  They  were  the  principal  debtors, 
and  the  assignment  and  guaranty  was  the  mode  of  paying  their  own 
debt.  Hence  it  was  held  that  the  parol  guaranty  was  primarily  a 
promise  to  pay  their  own  debt  rather  than  the  debt  of  another.  Ar- 
nold v.  Stedman,  9  Wright  186,  was  a  case  within  one  of  the  recog- 
nized exceptions.  There  the  promisor's  property  was  liable  for  the 
debt  of  another,  independent  of  the  express  promise,  and  the  de- 
fendant undertook  to  pay  the  debt  of  the  property. 

And  among  all  the  cases  cited  by  the  plaintiff  in  error,  in  whicli 
it  was  held  that  a  promise  to  pay  a  debt  of  another  was  not  within 
the  statute,  there  are  none  which  are  inconsistent  with  the  rule,  as 
we  have  stated  it,  if  we  except  Leonard  v.  Vredenberg,  8  Johns.  39. 
There  it  was  laid  down  that  cases  are  not  within  the  statute  whert 
"The  promise  to  pay  the  debt  of  another  arises  out  of  some  new  and 
original  consideration  of  benefit  or  harm  moving  between  the  new 
contracting  parties."  That  this  proposition  is  inaccurate,  however, 
is  almost  universally  admitted,  and,  as  we  have  already  remarked,  il 
i  practically  denies  all  effect  to  the  statute.  It  can  not  be  admitted 
for  a  moment  in  the  terms  in  which  it  was  expressed. 

If  now  we  revert  to  the  facts  of  the  case  before  us,  there  seems  nc 
reason  to  doubt  that  the  promise  of  the  defendants  is  within  our 
Act  of  April  26,  1855.  It  was  a  promise  to  pay  the  debts  of  "The" 
Eastern  Market  Company."  It  was  strictly  collateral  to  those  debts, 
not  a  substituted  obligation.  Those  debts  still  continued.  The  com- 
pany remained  the  primary  debtor,  and  had  they  paid,  the  defend- 
ants would  have  had  nothing  to  pay  either  to  the  plaintiff  or  tc 
the  original  debtor.  The  promise  of  the  defendants  was  therefore 
in  no  sense  a  promise  to  pay  their  own  debt,  or  a  debt  of  their  prop- 


I 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  193 

erty.  It  was  not  in  relief  of  any  property  they  owned  or  upon  which 
they  held  a  lien.  Nor  was  the  consideration  for  the  promise  of  a 
nature  to  take  the  case  out  of  the  statute.  It  was  not  a  placing  in 
the  hands  of  the  defendants,  by  the  debtor  or  the  creditor,  funds, 
securities  or  property  of  the  debtor  pledged  or  devoted  to  the  pay- 
ment of  the  debts.  The  transfer  of  the  small  number  of  shares  of 
stock,  and  the  resignation  by  the  plaintiffs  of  their  directorship, 
were  Fo  enable  the  defendants  to  become  directors,  not  to  place 
funds  in  their  hands  to  pay  the  debts.  The  averment  is  that  it  was 
their  own  money  they  promised  to  pay  in  discharge  of  the  debts, 
and  it  is  because  they  did  not  pay  their  own  money  that  this  action 
is  brought. 

If,  then,  it  were  true  that  the  plaintiff  could  sue  alone,  and  that 
there  was  no  illegality  in  the  alleged  contract,  which  we  now  neither 
affirm  nor  deny,  the  promise  is  not  enforceable  in  consequence  of 
the  statute  of  frauds,  and  for  that  reason  the  offer  of  evidence  was 
properly  overruled. 

Judgment  affirmed. 

In  Furbish  v.  Goodnow,  98  Mass.  296,  298,  it  is  said :  "When  the  original 
debtor  remains  liable,  yet  if  the  creditor,  in  consideration  of  the  new  promise, 
releases  some  interest  or  advantage  relating  to  or  affecting  the  original  debt, 
and  enuring  to  the  benefit  of  the  new  promisor,  his  promise  is  considered  as 
a  promise  to  answer  for  his  own  debt,  and  the  case  is  not  within  the  statute. 
But  if  no  consideration  moves  from  the  creditor  to  the  new  promisor,  and  the 
original  debtor  still  remains  liable  for  the  debt,  the  fact  that  the  promisee 
gives  up  something  to  the  debtor,  or  that  a  transfer  of  property  is  made  or 
other  consideration  moves  from  that  debtor  to  the  new  promisor  to  induce 
the  latter  to  make  the  new  promise,  does  not  make  this  promise  the  less  a 
promise  to  answer  for  the  debt  of  another  ;  but,  on  the  contrary,  the  fact  that 
the  only  new  consideration  either  enures  to  the  benefit  of  that  other  person, 
or  is  paid  by  him  to  the  new  promisor,  shows  that  the  object  of  the  new 
promise  is  to  answer  for  his  debt." 


MATTHEW  WHITE,  RESPONDENT,  v.  JAMES  RINTOUL,^ 

APPELLANT 

108  N.  Y.  222,  15  N.  E.  318  (1888). 

This  action  was  brought  upon  an  alleged  verbal  promise  of  de- 
fendant to  pay  the  amount  of  two  notes  owned  by  plaintiff  and  made 
by  the  firm  of  Wheatcroft  &  Rintoul. 

The  material  facts  are  stated  in  the  opinion. 

Finch,  J. :    The  doctrine  prevailing  in  this  state  which  serves  to 

distinguish  between  original  and  collateral  promises  in  cases  arising 

under  the  statute  of  frauds  has  been  reached  in  three  stages.    Each 

was  a  definite  and  deliberate  advance  toward  a  more  faithful  ob- 

13— De  Witt. 


194  THE    STATUTE    OF    FRAUDS 

servance  of  the  statute,  and  an  abandonment  of  efforts  to  narrow 
the  just  and  natural  range  of  its  application.  When,  by  some  au- 
thorities, it  was  said  that  a  verbal  promise  to  pay  the  debt  of  another 
was  always  collateral  and  invalid  if  the  primary  debt  continued  to 
exist  concurrently  with  the  promise,  a  simple  and  easy  test  was  fur- 
nished to  determine  whether  the  statute  did  or  did  not  apply.  But 
when  that  test  was  discarded,  and  it  became  the  law  that  a  promise 
to  pay  another's  debt  might  be  original  although  that  debt  subsisted 
and  was  in  no  manner  extinguished,  the  presence  of  such  continued 
liability  raised  a  cloud  of  doubt  and  ambiguity  which  perhaps  will 
never  be  entirely  dissipated.  The  argument  in  the  present  case  has 
so  reached  back  to  the  foundations  of  the  controversy,  and  chal- 
lenged or  construed  what  has  been  said  and  ruled,  as  to  make  both 
useful  and  necessary  a  study  of  the  path  which  the  courts  of  this 
state  have  followed.  The  plaintiff  has  recovered  upon  a  verbal 
promise  to  pay  the  debt  of  another,  and  seeks  to  maintain  his  posi- 
tion in  part  upon  the  definition  of  an  original  promise  framed  in  the 
old  and  familiar  case  of  Leonard  v.  Vredenburg  (8  John.  29).  That 
definition  assumed  as  the  test  of  an  original  promise  that  it  was 
founded  on  a  new  or  further  consideration  of  benefit  or  harm  mov- 
ing between  the  promisor  and  promisee.  There  was  found  in  this 
some  inaccuracy  of  expression.  For  since  every  promise  must  have 
some  consideration  to  be  valid  at  common  law ;  and  that  necessary 
and  inevitable  consideration,  wherever  the  debt  to  be  paid  ante- 
cedently existed,  is  always  "new"  and  "further"  because  different 
from  that  of  the  primary  debt ;  and  since  also  such  new  considera- 
tion does  frequently  move  between  the  newly  contracting  parties, 
giving  benefit  to  promisor  or  harm  to  promisee ;  it  became  apparent 
that  the  terms  of  the  definition  were  dangerously  broad  and  ca- 
pable of  a  grave  misapprehension,  making  it  almost  possible  to  say 
that  a  promise  good  at  common  law  between  the  new  parties  was 
good  also  in  spite  of  the  statute. 

This  difficulty  was  disclosed  and  measured,  and  then  remedied  in 
Mallory  v.  Gillett  (21  N.  Y.  412),  by  a  divided  court,  it  is  true,  but 
upon  a  prevailing  opinion  so  strong  in  its  reasoning  and  so  clear  in 
its  analysis  as  to  have  commanded  very  general  approval.  The  case 
was  one  where,  in  reliance  on  the  promise  made,  the  promisee  had 
released  to  his  debtor  a  lien  which  gave  his  debt  protection.  Within 
the  language  of  the  rule  in  Leonard  v.  Vredenburg  the  promise  was 
original  and  not  within  the  statute,  since  the  consideration  which 
supported  it  was  "new"  and  "further"  and  passed  between  the 
newly  contracting  parties,  and  consisted  in  the  harm  to  the  promisee 
involved  in  the  surrender  of  his  lien.  But  the  promise  was  never- 
theless held  to  be  collateral,  and  the  earlier  definition  modified  so 
as  to  require  that  the  new  consideration  should  move  to  the  promisor 
and  be  beneficial  to  him.  This  change  shut  out  at  once  from  the 
class  of  original  promises  all  those  in  which  the  consideration  of  the 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  195 

'promise  was  harm  to  the  promisee,  and  the  resultant  benefit  moved 
to  the  debtor  instead  of  the  promisor.  The  ground  of  the  doctrine 
thus  asserted  was  explained  by  the  test  then  prevailing  in  Massachu- 
setts, declaring  the  promise  original  where  its  leading  and  chief 
object  is  to  subserve  or  promote  some  interest  or  purpose  of  the 
promisor  himself,  and  upon  which  the  respondent  very  much  relies. 
(Nelson  v.  Boynton,  3  Mete.  396.)  That  this  expression  was  under- 
stood to  mean,  not  merely  some  moral  or  sentimental  object,  but  to 
relate  to  a  legal  interest  or  purpose  tangible  by  the  law  and  a  prod- 
uct of  the  consideration  received  from  creditor  or  debtor  is  apparent  0 
from  the  further  current  of  the  explanation.  The  learned  judge 
contrasts  a  case  in  which  the  consideration  benefits  the  debtor,  but 
in  it  the  promisor  has  no  personal  interest  or  concern,  with  one  in 
which  the  consideration  is  the  product  of  some  new  dealing  between  t 
creditor  or  debtor  and  promisor,  and  in  which  the  latter  has  a  per- 
sonal interest.  That  is  what  he  means  by  a  consideration  of  benefit 
moving  to  the  promisor,  and  to  obtain  which  is  the  object  of  the 
promise.  But  the  rule  thus  stated  and  explained  was  again  narrowed 
and  restricted.  In  Brown  v.  Weber  (38  N.  Y.  187)  it  was  asserted 
that  a  promise  might  still  be  collateral  even  though  the  new  con- 
sideration moved  to  the  promisor  and  was  beneficial  to  him.  It  was 
distinctly  said  that  the  existence  of  those  facts  would  not  in  every 
case  stamp  the  promise  as  original,  but  the  inquiry  would  remain 
whether  such  promise  was  independent  of  the  original  debt  or  con- 
tingent upon  it.  The  court  added,  "the  test  to  be  applied  to  every 
case  is  whether  the  party  sought  to  be  charged  is  the  principal 
debtor  primarily  liable,  or  whether  he  is  only  liable  in  case  of  the 
default  of  a  third  person,  in  other  words  whether  he  is  the  debtor, 
or  whether  his  relation  to  the  creditor  is  that  of  surety  for  the  per- 
formance by  some  other  person  of  the  obligation  of  the  latter  to  the 
creditor." 

If  this  statement  was  not  needed  for  a  determination  of  the  case, 
or  the  generality  of  its  language  left  it  debatable  what  precise  limi- 
tation or  qualification  was  intended  to  be  added  to  the  rule  of  Mal- 
lory  v.  Gillett,  both  difficulties  were  removed  by  the  recent  case  of 
Ackley  v.  Parmenter  (98  N.  Y.  425),  in  which  Rappallo,  J.,  states 
with  precision  and  accuracy  the  doctrine  of  the  court.  The  debt 
there  was  the  debt  of  one  Silliman,  and  the  verbal  undertakings 
were  held  to  be  within  the  statute,  unless  the  defendant,  before 
making  the  promise,  had  so  dealt  as  to  make  Silliman's  debt  his  own, 
or  had  incurred  a  duty  to  pay  the  amount  owing  from  Silliman  to 
the  plaintiff.  It  was  added,  relatively  to  one  possible  view  of  the 
facts,  that  the  plaintiff's  undertaking  was  to  pay  out  of  the  proceeds 
of  the  stock,  and  his  duty  to  pay  would  not  arise  until  he  had  con- 
verted the  stock  into  money.  "Consequently,"  it  was  concluded,  "at 
the  time  of  the  alleged  promise  he  was  under  no  present  duty  to 
pay  and  the  promise,  though  founded  on  a  good  consideration  (viz., 


196  THE    STATUTE    OF    FRAUDS 

the  adjournment  of  the  sale),  was  nevertheless  an  undertaking  to 
pay  the  debt  of  another." 

These  four  cases,  advancing  by  three  distinct  stages  in  a  common 
direction,  have  ended  in  establishing  a  doctrine  in  the  courts  of  this 
;State  which  may  be  stated  with  approximate  accuracy  thus,  (that 
where  the  primary  debt  subsists  and  was  antecedently  contracte 
the  promise  to  pay  it  is  original  when  it  is  founded  on  a  new  con- 
sideration moving  to  the  promisor  and  Beneficial  to  him,  and  such 
A.  that  the  promisor  thereby  comes  under  an  independent  duty  of  pay- 
ment irrespective  of  the  liability  of  the  principal  debtor. 

The  question  in  the  present  case  was  raised  in  three  ways.  At 
the  first  effort  to  prove  a  verbal  promise  to  pay  the  debt  due  plain- 
tiff the  objection  was  made  to  the  evidence  that  if  any  promise  was 
to  be  proved  it  must  be  in  writing.  The  objection  was  overruled  and 
an  exception  was  taken.  After  the  conversation  had  been  stated, 
which  culminated  in  a  promise,  the  defendant  moved  to  strike  out 
that  part  of  the  answer  which  detailed  the  verbal  promise.  That 
motion  was  denied  and  the  defendant  again  excepted.  At  the  close 
of  the  plaintiff's  case  there  was  a  motion  for  a  nonsuit  upon  the 
ground  that  the  promise  was  not  in  writing  and  was,  therefore, 
within  the  statute  of  frauds ;  and  also  upon  the  ground  that  there 
was  no  evidence  that  the  promise  was  for  the  promisor's  special 
benefit.  The  motion  was  denied  and  again  an  exception  was  taken. 
Finally,  at  the  close  of  the  evidence,  the  court  was  asked  to  direct  a 
verdict  for  the  defendant,  which  was  refused,  and  the  defendant 
excepted.  I  do  not  think  that  any  of  these  exceptions  were  waived 
by  the  defendant's  subsequent  request  to  charge.  The  case  went  to 
the  jury  against  his  objection  and  upon  a  theory  to  which  the  court 
drove  him,  he  had  a  right  to  claim  that  he  was  not  liable,  and  ask 
a  charge  which  might  give  him  protection  without  at  all  waiving  his 
position  upon  the  law. 

We  are,  therefore,  to  bring  the  facts  of  the  case  to  the  test  of  the 
rule  above  stated,  and  in  doing  so  we  are  to  take  them  from  the  de- 
fendant's own  lips,  to  treat  as  true  his  representations  as  detailed 
by  his  adversary,  and  to  draw  from  the  evidence  every  possible  in- 
ference which  is  favorable  to  the  plaintiff's  case.  The  firm  of 
Wheatcroft  &  Rintoul,  of  which  defendant  was  not  a  member,  be- 
came indebted  to  the  plaintiff  in  the  amount  of  two  notes ;  one  dated 
June  1,  1880,  and  maturing  September  4,  1880,  and  the  other  dated 
July  1,  1880,  and  to  become  due  October  4,  1880.  On  the  16th  of 
August,  1880,  and  so  before  the  maturity  of  either  note,  the  defend- 
ant requested  the  plaintiff  to  forbear  any  effort  at  their  collection 
until  June  or  July,  1881,  promising,  if  the  plaintiff  would  do  so,  to 
pay  the  amount  of  the  notes.  The  plaintiff  did  forbear  and  now 
r  sues  upon  the  promise.  The  courts  have  held  many  times  that  a 
promise  upon  consideration  of  forbearance  to  sue  the  debtor  is  not 
original,  and  to  be  valid  must  be  in  writing. 


CONSIDERATION    BENEFICIAL    TO    PROMISOR  197 

In  Ackley  v.  Parmenter  (supra),  it  was  said,  "forbearance  or 
indulgence  to  the  debtor,  even  at  the  request  of  the  promisor,  will 
not  support  a  verbal  promise  by  a  third  party  to  pay  the  debt."  If 
there  were  nothing  more  of  the  case  than  has  been  thus  far  stated,  - 
it  would  be  very  clear  that  the  plaintiff  ought  to  have  been  non- 
suited. But  there  are  further  facts  upon  which  it  was  found  that  the 
sole  object  of  the  defendant  was  to  subserve  some  purpose  of  his 
own.  I  do  not  recognize  that  as  either  a  test  or  a  rule.  "Some  pur- 
pose" might  mean  one  of  morals  or  sentiment,  of  gratitude  or  pride, 
and  to  subserve  such  purpose  might  be  the  sole  object  of  the  prom- 
ise, and  then  by  submitting  the  question  to  the  jury  it  would  be  easy 
in  every  case  to  defeat  and  evade  the  statute.  But  neither  the  court 
below  nor  the  plaintiff's  counsel  meant  so  loose  a  doctrine.  What 
they  did  mean  was  that  on  the  facts  it  was  possible  to  say  that  the 
forbearance  of  the  plaintiff  to  sue  was  not  merely  a  benefit  to 
Wheatcroft  &  Rintoul,  but  that  defendant  was  so  situated  relatively 
to  that  firm  that  the  plaintiff's  delay  was  a  benefit  to  the  defendant 
personally,  which  he  contracted  for  in  his  own  interest,  and  obtained 
by  means  of  his  promise. 

One^member  of  the  debtor  firm  was  the  defendant's  son,  and  that 
firm  was  somewhat  in  debt  and  not  managing  the  business  success- 
fully or  satisfactorily.  The  defendant  was  a  creditor  of  the  firm.  He 
had  loaned  to  them  something  over  $5,000,  for  which  he  held  as  a 
security  a  chattel  mortgage  on  the  fixtures  and  machinery  of  the 
firm.  He  was,  therefore,  to  some  extent,  at  least,  a  secured  creditor. 
He  represented  to  plaintiff  that  he  had  advanced  all  the  money  for 
the  business  of  the  firm;  that  he  was  determined  to  get  rid  of  his 
son's  partner,  who  was  drawing  money  that  was  his  money;  that 
the  business  was  not  paying  and  he  wanted  to  give  it  up  or  he  was 
going  to  conduct  it  alone  or  through  his  son;  that  if  plaintiff  tried 
to  collect  his  debt  he  would  not  be  able  to  get  anything;  that  there 
was  a  chattel  mortgage  against  the  property ;  that  he  had  furnished 
money  himself  for  which  he  had  a  mortgage  or  would  get  one  and 
plaintiff  could  not  get  anything;  that  the  only  way  and  the  best  way 
would  be  to  give  the  firm  time ;  that  it  was  late  in  the  season  and  by 
waiting  until  the  next  summer  they  could  sell  their  beer  and  that 
he  would  pay  plaintiff  for  the  two  notes.  That  is  plaintiff's  account 
of  the  conversation  given  on  his  direct  examination.  On  his  cross- 
examination  he  added  that  defendant  said  he  had  a  claim  or  a  con- 
fession or  a  mortgage  or  some  security  for  the  amount  of  money 
due  him  and  that  plaintiff  could  not  get  anything  anyway ;  and  that 
the  money  that  was  due  defendant  was  the  first  to  be  paid  out  of 
the  firm.  Upon  the  basis  of  this  evidence  the  plaintiff  contends  that 
the  defendant  had  a  direct  personal  interest  in  procuring  a  forbear- 
ance to  sue  the  firm  which  he  explains  in  his  brief  by  saying,  "that 
if  the  plaintiff  pressed  the  collection  of  the  notes,  and  did  not  wait 
till  the  then  next  summer  defendant  would  lose  his  money"  which 


198  THE  STATUTE  OF  FRAUDS 

had  been  loaned  to  the  firm.  But  I  do  not  discover  a  single  fact  in 
the  case  which  tends  to  any  such  conclusion.  I  have  not  overlooked 
the  proof  that  the  plaintiff,  while  saying  nothing  of  the  sort  in  his 
first  detail  of  defendant's  words,  did  later  add  that  defendant  de- 
clared he  would  lose  his  money  if  plaintiff  forced  a  collection.  But 
this  was  merely  an  expression  of  an  opinion  or  fear,  not  only  with- 
out anything  to  justify  it,  but  in  direct  contradiction  of  every  fact 
bearing  upon  the  situation,  and  indicating  defendant's  relations  with 
the  firm.  It  was  a  fear  without  a  foundation ;  a  state  of  mind  and 
not  a  result  of  existing  facts  seen  in  their  legal  bearing.  The  de-  5 
fendant  was  a  secured  creditor  of  the  firm.  Delay  on  the  part  of 
plaintiff  is  not  shown  to  have  been  of  the  slightest  consequence  to  the 
interest  of  defendant.  It  is  not  pretended  that  his  security  was  in- 
adequate. Beyond  that  he  asserted  that  he  was  to  be  first  paid,  and 
that  plaintiff  could  get  nothing  if  he  sued.  When  the  conversation 
took  place  the  first  note  had  not  matured  and  could  not  be  sued 
under  about  a  fortnight.  It  is  not  suggested  or  shown  that  defend- 
*  ant's  claim  was  not  due,  and  there  was  ample  time  if  further  security 
was  needed  to  sue  and  levy  in  advance  of  plaintiff.  That  delay  by 
the  latter  was  in  the  slightest  degree  material  to  the  safety  of  de- 
fendant's debts  is  a  purely  gratuitous  assumption.  The  evidence  is 
all  to  the  exact  contrary.  The  motive  disclosed  was  regard  for  his 
son  and  desire  that  his  business  credit  should  not  be  damaged  by  a 
failure.  The  purpose  for  which  he  sought  delay  was  wholly  in  the 
interest  of  that  son,  and  to  enable  him  to  market  his  beer  the  next 
summer  and  so  procure  the  means  to  pay  the  plaintiff  without  sac- 
rifice or  discredit.  The  debt  of  the  firm  was  in  no  sense  defendant's 
debt.  No  consideration  of  benefit  moved  to  him  from  either  party, 
and  least  of  all  had  there  been  any  new  dealing  with  either  which 
put  upon  him  a  duty  of  payment.  Before  the  promise  was  made  he 
owed  no  such  duty  and  came  under  no  such  obligation.  The  doctrine 
of  this  court  clearly  stamps  the  promise  as  collateral  and  void  for 
want  of  a  writing.  Indeed,  the  proof  shows  that  the  plaintiff  him- 
self did  not  mistake  its  character.  On  the  1st  of  September,  1880, 
he  says  defendant  called  to  get  his  signature  to  a  paper  which  re- 
cited the  ownership  by  defendant  of  a  chattel  mortgage  on  property 
of  Wheatcrof t  &  Rintoul,  and  although  he  signed  it  he  testified,  "my 
remark  that  I  did  not  want  to  sign  the  paper  was  caused  by  my 
surprise  that  the  man  should  ask  me  to  sign  that  paper  when  he  had 
just  guaranteed  my  debt."  Wheatcroft  was  present  at  that  interview 
and  called  as  a  witness  for  plaintiff,  and  testified  that  he  thought 
defendant  said  to  plaintiff:  "I  have  already  promised  to  see  you 
paid,"  and  added  that  the  words  were  distinctly  impressed  upon  his 
memory.  John  Flintoff  was  also  present  at  that  conversation  and 
was  called  by  plaintiff,  relating  its  language  thus :  "But,  said  Mr. 
White,  you  said  you  would  see  me  paid,  and  Mr.  Rantoul  assented 
to  the  proposition ;  he  said,  for  the  matter  of  that  I  said  I  will  see 


PAYMENT    FROM    PROMISORS    PROPERTY  199 

you  paid."  So  that  not  only  do  no  facts  appear  which  make  de- 
fendant's safety  depend  upon  plaintiff's  forbearance,  but  the  very 
promise  itself  by  the  plaintiff's  own  admission  and  the  recital  of  his 
witnesses  was  a  guaranty  of  the  firm's  debt  and  contingent  upon 
nonpayment  by  them.  The  case  is  one  in  which  a  faithful  observ- 
ance of  the  statute  of  frauds  requires  us  to  say  that  the  promise 
sued  on  is  void  for  want  of  a  writings 

The  judgment  should  be  reversed,  and  a  new  trial  granted,  costs 
to  abide  event. 

All  concur. 

Judgment  reversed. 

See  also  Fullam  v.  Adams,  37  Vt.  391 ;  Davis  v.  Patrick,  141  U.  S.  479,  35 

L.  ed.  826;  Nelson  v.  Boynton,  3  Mete.  (Mass.)  396,  37  Am.  Dec.  148;  Patton 

v.  Mills,  21  Kans.  163;  Crawford  v.  Edison,  45  Ohio  St.  239,  13  N.  E.  80; 

Davies  v.  Carey,  72  Wash.  537,  130  Pac.  1137  ;  Trohardt  Bros.  v.  Duff,  156 

.  Iowa  144,  135  N.  W.  609,  40  L.  R.  A.  (N.  S.)  242n,  Ann.  Cas.  1915B,  254. 

Cases  following  the  very  liberal  rule  announced  in  Leonard  v.  Vredensburg 
are :  Lookout  Mt.  R.  Co.  v.  Houston,  85  Tenn.  224,  2  S.  W.  36 ;  Ellis  &  Co.  v. 
Carroll,  68  S.  Car.  376,  47  S.  E.  679,  102  Am.  St.  679;  Gale  v.  Harp,  64  Ark. 
462,  43  S.  W.  144;  Swayne  v.  Hill,  59  Nebr.  652,  81  N.  W.  855. 

In  Kinsley  v.  Balcome,  4  Barb.  (N.  Y.)  131,  Sill,  Judge,  says:  "In  the 
course  of  this  examination  I  have  seen  it  repeatedly  laid  down  as  the  rule, 
that  'when  the  promise  arises  out  of  some  new  and  original  consideration  of 
benefit  or  harm  moving  between  the  newly  contracting  parties,'  the  promise  is 
not  within  the  statute.  Without  some  qualification  this  is  not  the  rule.  If  this 
were  literally  so,  the  statute  would  be  nullified ;  for,  as  has  been  shown  be- 
fore, a  promise  would  be  always  binding  when  there  is  a  good  consideration 
for  it.  Whenever  I  have  met  this  dictum  (for  such  only  I  conceive  it),  I  have 
examined  every  authority  cited  in  support  of  it,  but  do  not  find  it  sustained. 
The  true  rule  is  that  the  new  'original  consideration'  spoken  of  must  be  such 
as^JxTstrift  the  actual  indebtedness  to  the  new  promisor.  So  that  as  between 
him  and  the  original  debtor  he  must  be  bound  to  pay  the  debt  as  his  own  the 
latter  standing  to  him  in  the  relation  of  surety." 


SECTION  8.   PROMISE  TO  PAY  OUT  OF  PROPERTY  IN 
PROMISOR'S  HANDS 

THE  FIRST  NATIONAL  BANK  OF  SING  SING,  RESPON-' 

DENT,  v.  THOMAS  H.  CHALMERS  ET  AL., 

APPELLANTS 

144  N.  Y.  432,  39  N.  E.  331  (1895). 

This  action  was  brought  upon  an  alleged  agreement  made  by  de- 
fendants for  a  valuable  consideration  to  pay  to  plaintiff  the  amount 
of  an  indebtedness  of  the  firm  of  Charles  Spruce  &  Co.  to  it. 

On  October  30,  1882,  said  firm,  being  financially  embarrassed,  con- 
fessed judgment  to  defendants  for  various  sums  due  them  and  for 


200  THE  STATUTE  OF  FRAUDS 


amounts  owing  to  other  parties.  The  statement  on  which  the  judg- 
ment was  entered,  under  the  head  of  "Liabilities  assumed,"  set  forth, 
among  other  items,  the  following:  "Money  due  by  Charles  Spruce 
&  Co.  to  First  National  Bank  of  Sing  Sing  on  overdrawn  account, 
$1,556.47." 

The  court  found  that  defendant  made  an  absolute,  unconditional 
promise  to  pay  plaintiff's  debt. 

Further  facts  are  stated  in  the  opinion. 

Finch,  J. :  "What  constitutes  an  original  promise,  upon  which  the 
statute  of  frauds  does  not  operate,  and  which,  therefore,  may  be 
valid  and  effectual  without  a  writing,  is  fairly  settled  in  one  direc- 
tion at  least.  Wherever  the  facts  show  that  the  debtor  has  trans— 
ferred  or  delivered  to  the  promisor,  for  his  own  use  and  benefit,  - 
money  or  property  in  consideration  of  the  latter's  agreement  to  as- 
sume and  pay  the  outstanding  debt,  and  he,  thereupon,  has  promised 
the  creditor  to  pay,  that  promise  is  original,  upon  the  ground  that 
by  the  acceptance  of  the  fund  or  property  under  an  agreement  to 
assume  and  pay  the  debt  the  promisor  has  made  that  debt  his  own,  I 
has  become  primarily  liable  for  its  discharge,  and  has  assumed  an 
independent  duty  of  payment  irrespective  of  the  liability  of  the^ 
principal  debtor.  (Ackley  v.  Parmenter,  98  N.  Y.  425 ;  White  v. 
Rintoul,  108  id.  223.)  In  such  a  case  the  debt  has  become  that  of 
the  new  party  promising;  his  promise  is  not  to  pay  the  debt  of  an- 
other, but  his  own  ;  as  between  him  and  the  primary  debtor  the  latter 
has  become  practically  a  surety  entitled  to  require  the  payment  to  be 
made  by  his  transferee.  The  consideration  of  the  primary  debt,  by 
the  transfer  of  the  money  or  property  into  which  that  consideration 
had  been  in  effect  merged,  may  be  said  to  have  been  shifted  over  to 
the  new  promisor,  who  thereby  comes  under  a  duty  of  payment  as 
obvious  as  if  such  original  consideration  had  passed  directly  to  him. 

The  question  before  us,  therefore,  is  whether  the  promise  of  the 
defendants,  made  to  the  bank,  to  pay  the  debt  due  it  from  Leary  and 
Spruce,  was  founded  upon  such  a  transfer  of  property  as  I  have 
above  described,  and  thus  was  original,  or  whether  it  was  not  so 
founded  and  must  for  that  reason  be  deemed  collateral. 

We  are  bound  to  assume  upon  the  findings  that  the  promise  to 
pay  was  absolute,  and  clean  of  condition  or  contingency.  The  ques- 
tion whether  it  was  made  at  all  was  severely  litigated,  and  de- 
pended upon  the  conclusion  to  be  drawn  from  testimony  full  of 
violent  contradictions ;  and  we  are  not  at  liberty  to  review  the  de- 
termination of  fact  which  affirms  that  the  promise  to  pay  was  in 
truth  made,  and  was  absolute  in  its  terms  as  sworn  to  by  the  wit- 
nesses on  the  part  of  the  plaintiff.  As  to  the  substance  of  the  agree- 
ment between  the  defendants  and  the  primary  debtors  there  is  also 
contradiction.  The  former  assert  that  their  assumption  of  the  debt 
went  no  further  than  a  consent  to  pay  it  out  of  the  proceeds  of  the 
debtor's  property  after  the  discharge  of  their  own  debt;  or,  in  other 


J 

PAYMENT    FROM    PROMISOR^    PROPERTY  201 

words,  that  their  agreed  liability  was  to  pay  plaintiff  only  out  of 
proceeds  when  realized,  and  even  then  out  of  any  possible  excess 
remaining  over  and  above  their  own  debt.  If  that  is  true  they  were 
under  no  present  duty  to  pay  the  bank  when  the  promise  was  made ; 
the  debt  had  not  become  theirs ;  might  never  become  theirs ;  and  so 
their  verbal  promise  to  the  bank  was  purely  collateral  and  to  answer 
for  the  debt  of  another.  That  proposition  was  quite  distinctly  held 
in  Ackley  v.  Parmenter  (supra)  and  upon  the  authority  of  Belknap 
v.  Bender  (75  X.  Y.  446),  which  disclosed  an  agreement  simply  to 
pay  out  of  proceeds  when  realized,  and  so  far  as  sufficient.  On  this 
branch  of  the  case  the  inquiry  turns  upon  the  facts,  and  the  findings 
fail  to  disclose  any  such  agreement,  but  establish  the  contrary.  They 
determine  that  for  a  valuable  consideration,  and  by  an  agreement 
with  Leary  and  Spruce,  the  defendants  agreed  to  pay  the  plaintiff 
the  debt  due  to  it.  This  finding  is  free  of  any  condition,  and  imports 
an  absolute  agreement  to  pay  at  once  and  in  full,  and  so  negatives 
the  defendants'  version  of  the  facts.  It  is  sustained  by  the  testi- 
mony of  the  plaintiff's  witnesses,  and  is  strongly  corroborated  by  the 
form  of  the  confession  of  judgment  which  the  defendants'  attorney 
drew,  which  they  accepted,  upon  which  they  issued  an  execution, 
and  which  provides  for  an  assumption  of  the  bank  debt  absolutely 
and  without  condition.  All  the  requisites  of  an  original  promise, 
unaffected  by  the  statute  of  frauds,  were  thus  explicitly  embraced 
in  the  findings,  except  one.  It  is  not  in  terms  or  expressly  found 
that  the  consideration,  described  simply  as  valuable,  was,  beyond 
that,  such  a  consideration  as  would  avoid  the  statute  because  it  con- 
sisted of  a  transfer  to  the  defendants  for  their  own  use  and  benefit 
of  the  debtors'  property.  That  fact  is  involved  in  the  findings,  since 
it  is  essential  to  the  legal  conclusion,  which  can  not  stand  without  it. 
"We  may  look  into  the  evidence,  therefore,  to  see  whether  it  would 
have  sustained  such  a  finding  if  it  had  been  explicitly  made,  and 
thereupon  assume  the  fact  in  support  of  the  judgment.  (Ogden  v. 
Alexander,  140  N.  Y.  356.) 

I  can  find  in  the  proof  no  express  agreement  in  words  transfer- 
ring the  real  and  personal  estate  of  the  firm  to  the  defendants,  but 
that  there  was  such  a  transfer  in  fact  is  abundantly  established  and 
beyond  any  reasonable  doubt.  The  situation  appears  to  have  been 
this:  Leary  and  Spruce  were  manufacturers  of  files.  The  defend- 
ants in  New  York  were  the  regular  purchasers,  at  established  rates, 
of  their  whole  product.  The  manufacturers  became  seriously  in- 
debted to  their  vendees  in  the  progress  of  the  business,  and,  as  se- 
curity therefor  had  given  to  them  a  mortgage  on  their  real  estate 
for  $2,500,  dated  in  1876,  and  payable  in  one  year;  a  second  mort- 
gage on  the  same  land  for  $5,000,  dated  in  April,  1882,  and  payable 
in  one  year ;  and,  as  collateral  to  the  last-named  security,  a  chattel 
mortgage  for  $5,000  covering  all  the  machinery  and  personal  prop- 
erty used  in  the  manufacture  of  files.     The  stock  on  hand  and  the 


202  THE    STATUTE   OF   FRAUDS 

equity  of  the  mortgagors  still  remained  to  them.  There  was  due,  or 
to  become  due,  on  these  securities  about  the  sum  of  $7,400  at  the 
date  of  the  final  arrangement  of  October,  1882,  assuming  that  all 
the  debt  created  prior  to  these  dates  was  protected  by  the  mortgages. 
But  an  added  indebtedness,  not  covered  by  the  securities,  had  later 
accrued  in  the  form  of  two  notes  and  one  indorsement,  amounting 
to  about  $4,200,  no  part  of  which  had  matured  on  October  30, 
1882.  On  that  day  the  debtors  announced  to  the  defendants  their 
inability  to  pay.  Of  course  the  statement  created  alarm.  None  of 
the  mortgages  secured  future  advances,  and  the  defendants  found 
themselves  unsecured  creditors  to  the  amount  of  over  $4,000.  The 
chattel  mortgage  was  not  due  and  contained  no  danger  clause  per- 
mitting an  immediate  seizure.  The  whole  stock  on  hand,  manufac- 
tured and  unmanufactured,  was  incumbered  by  no  lien,  and  that  and 
the  equity  under  the  mortgages  belonged  to  the  debtors,  was  open 
to  attack,  and  could  be  disposed  of  by  the  firm.  They  estimated  the 
entire  value  of  their  property  at  $16,000,  which  was  the  footing  of 
their  last  preceding  inventory,  and  claimed  it  to  be  sufficient,  not 
only  to  pay  the  defendants  in  full,  but  also  the  bank  and  certain 
other  creditors  whom  they  wished  to  protect.  They  were  talking  of 
an  assignment,  but  assured  the  defendants  that  they  were  ready  to 
give  them  a  bill  of  sale  of  all  their  property,  or  any  other  security, 
provided  that  the  bank  and  other  named  creditors  were  protected. 
The  defendants  agreed  to  assume  and  pay  those  debts,  and  chose 
instead  of  a  bill  of  sale  to  take  a  confession  of  judgment.  In  that 
the  debtors  swore  that  they  were  justly  indebted  to  the  defendants 
in  a  sum  made  up  of  the  total  debt  to  the  latter,  and  of  the  debts  to 
other  named  creditors,  which  the  defendants  had  assumed  and 
agreed  to  pay.',  Had  the  transaction  stopped  at  this  point  it  would 
be  difficult  to  support  the  promise  to  the  bank,  unless  upon  the 
ground  of  an  intended  purchase  by  the  defendants  of  the  debtor's 
assets,  the  price  of  which  was  secured  by  the  confession  of  judg- 
ment. But  it  did  not  stop  there.  The  defendants  could  at  once  have 
levied  upon  the  whole  personal  property,  and  advertised  a  sale  of 
the  real  estate,  but  all  that  was  needless,  because  the  deblors.ii±_Qnce\ 
turned  over  the  whole  property  of  the  defendants,  and  put  them  in 
entire  and  complete  possession  for  their  own  use  and  benefit.  Lean' 
abandoned  it  utterly  and  went  away.  Spruce  remained  as  thehired 
servant  of  the  defendants,  working  for  wages  which  they  cut  down 
at  their  pleasure,  obeying  their  orders,  shipping  the  whole  manu- 
factured product  to  them  in  New  York,  drawing  on  them  for  the 
pay  roll  and  treating  the  property  in  all  respects  as  theirs.  Not  a, 
vestige  of  it  ever  came  back  to  the  debtors.  The  latter  were  willing 
to  transfer  it  as  their  offer  of  a  bill  of  sale  proves ;  they  did  transfer 
it  and  in  the  light  of  the  confession  of  judgment  and  the  promise 
to  the  bank  it  is  impossible  not  to  see  that  it  was  in  consideration  of 
an  agreement  by  the  defendants  to  pay  the  specified  debts. 


payment  of  pre-existing  liability  203 

I  have  not  failed  to  consider  the  attempted  explanation  of  Chal- 
mers and  the  argument  about  it  of  his  counsel.  The  former  sought 
to  put  himself  in  the  attitude  of  a  tenant  under  Spruce  as  landlord, 
to  claim  that  his  wages  of  twenty  dollars  a  week  were  in  part  for 
rent,  and  to  show  that  the  goods  were  sold  to  him  by  Spruce  as  be- 
fore the  failure.  But  the  latter,  though  unwillingly,  controverted  the 
theory,  and  Chalmers'  own  version  of  the  facts  does  not  harmonize 
with  the  explanation  made.  The  claim  that  Spruce  was  to  remain 
owner  and  work  out  the  debts  does  not  account  for  Leary's  aban- 
donment of  the  possession,  nor  Spruce's  service  for  wages,  still  less 
for  the  instant  assumption  and  payment  of  all  expenses  and  exer- 
cises of  complete  control  by  the  defendants.  They  took  all  the  prod- 
ucts, and  if  they  continued  to  keep  the  accounts  in  the  old  way  it 
was  but  a  natural  measure  of  convenience  in  order  to  separate  the 
factory  business  from  their  own,  and  be  able  to  ascertain  its  ultimate 
results.  They  took  the  confession  of  judgment  as  a  guard  and  pro- 
tection against  other  creditors,  and  as  a  defense  of  the  transfer  made 
.  to  them.  They  issued  no  execution  at  once  because  they  were  need- 
1  less  to  attain  possession,  but  did  issue  it  later  when  their  title  was 
(threatened.  That  all  this  was  done  upon  an  understanding  and 
agreement  in  accord  with  the  facts  seems  to  me  a  natural  and  nec- 
essary inference. 

i  I  think  the  promise  proved  and  found  rested  not  only  upon  a 
valuable  consideration,  but  one  of  such  character  as  to  make  the 
promise  original  and  save  it  from  the  condemnation  of  the  statute 
of  frauds. 

""The  judgment  should  be  affirmed,  with  costs. 
All  concur,  except  Haight,  J.,  not  sitting. 
Judgment  affirmed. 

Accord:  Woodruff  v.  Scaife,  83  Ala.  152,  3  So.  311;  Hughes  v.  Fisher,  10 
Colo.  383,  15  Pac.  702;  Mclntire  v.  Schiffer,  31  Colo.  246,  72  Pac.  1056;  Tuttle 
v.  Armstead,  53  Conn.  175,  22  Atl.  677;  Ledbetter  v.  McGhees,  84  Ga.  227,  10 
S.  E.  727;  State  v.  Kelly,  32JDhio_St:  421;  Wyman  v.  Smith,  2  Sanf.  Sup.  Ct. 
331 ;  Wait  v.  Wait,  28  Vt.  350 ;  Andrews  v.  Smith,  2  Cr.  M.  &  R.  627. 

Contra :    Emerick  v.  Sanders,  1  Wis.  77. 


SECTION  9.   PROMISE  TO  PAY  PRE-EXISTING  LIABIL- 
ITY OF  PROMISOR 

GILBERT   MILKS,   RESPONDENT,  v.   CHARLES   J.   RICH/ 

APPELLANT 

80  N.  Y.  269,  36  Am.  Rep.  615  (1880). 

This  action  was  brought  upon  an  alleged  oral  guaranty  or  prom- 
ise, upon  the  part  of  defendant,  at  the  time  of  the  sale  and  transfer 


204  THE  .STATUTE    OF    FRAUDS 

by  him  to  plaintiff,  that  the  note  was  good  and  would  be  paid  at 
maturity. 

The  note  in  question  was  made  by  C.  E.  Marsh,  payable  to  the 
order  of  S.  S.  Marsh,  and  indorsed  by  the  latter.  Plaintiff's  evi- 
dence was  to  the  effect  that  defendant  represented  to  him  he  had 
received  the  note  from  the  Marshes  for  moneys  advanced  by  him  to 
them  to  purchase  apples ;  that  he  stated  that  the  note  was  perfectly 
good  and  would  be  paid  at  maturity,  and  thereupon  plaintiff  pur- 
chased the  note.  He  caused  it  to  be  presented  when  due  at  the  place 
of  payment  specified  therein,  but  the  same  was  not  paid. 

Earl,  J. :  We  must  assume  here  the  most  favorable  construction 
which  the  evidence  will  bear  for  the  plaintiff,  as  all  conflict  and 
doubt  has  been  settled  in  his  favor  by  the  jury.  We  may  assume, 
then,  as  the  effect  of  the  evidence  (although  it  is  not  very  satisfac- 
tory), that  the  defendant,  in  borrowing  the  money  of  the  plaintiff 
and  disposing  of  the  Marsh  note  to  him,  was  ostensibly  acting  for 
himself,  and  not  as  agent  for  Marsh,  and  that  he  promised  that  the 
note  was  good,  and  would  be  paid  at  maturity.  The  defendant  claims 
that  this  promise,  not  in  writing,  is  void  under  the  statute  of  frauds. 
The  reasoning  to  take  this  promise  out  of  the  statute  is  quite  subtle, 
and  I  should  have  much  difficulty  in  yielding  it  my  assent  but  for  the 
authorities  which  I  think  ought  now  to  control.  The  following  are 
some  of  them:  Fowler  v.  Clearwater,  35  Barb.  143;  Dauber  v. 
Blackney,  38  id.  432 ;  Lossee  v.  Williams,  6  Lans.  228 ;  Johnson  v. 
Gilbert,  4  Hill  187 ;  Brown  v.  Curtiss,  2  N.  Y.  225 ;  Cardell  v.  Mc- 
Niel,  21  id.  336;  Bruce  v.  Burr,  67  id.  237.  In  Johnson  v.  Gilbert, 
the  plaintiff,  at  the  defendant's  request,  paid  one  James  Sherwood, 
and  in  consideration  of  that  payment,  the  defendant  transferred  the 
note  of  one  Eastman  to  the  plaintiff,  and  guaranteed  tiie  payment 
of  the  note.  It  was  held  that  this  guaranty  was  not  within  the  statute 
of  frauds.  Judge  Bronson  said  in  that  case,  by  way  of  illustration, 
that  if  A  sells  and  delivers  his  horse  to  B,  and  B  delivers  to  A  the 
note  of  C  for  one  hundred  dollars,  and  agrees  that  the  note_  shall 
be  paid  at  maturity,  it  is  an  original  undertaking,  and  not  within  the 
statute  of  frauds.  In  Dauber  v.  Blackney,  Judge  Hoyt,  writing  the 
opinion  of  the  court,  and  reviewing  many  decisions,  said:  f'That 
wherever  the  holder  of  a  note  against  a  third  person  turns  it  out  in 
payment  of  his  own  debt,  or  in  payment  of  property  purchased,  or 
for  money  received  by  him  from  the  person  to  whom  he  transfers 
it,  and  at  the  same  time  agrees  that  the  note  is  good,  or  will  be  paid 
at  maturity,  or  that  it  will  be  collected  by  due  process  of  law  against 
the  maker,  this  is  an  undertaking,  in  substance,  entirely  for  his  own 
benefit  and  advantage,  and  the  contract  is  valid,  although  it  rest 
entirely  in  parol,  and  is  not  within  the  statute  of  frauds."  In  Cardell 
v.  McNiel,  the  defendant,  making  a  purchase  of  a  horse  of  the 
plaintiff,  delivered  to  him  the  chattel  note  of  a  third  person  in  part 
payment,  and  agreed  by  parol  that  the  maker  was  good,  and  that  the 


PAYMENT    OF    PRE-EXISTING    LIABILITY  205 

note  would  be  paid  when  due,  and  it  was  held  that  the  agreement 
was  not  within  the  statute  of  frauds.  Judge  Comstock  said :  "In 
mere  form  it  was  certainly  a  collateral  undertaking,  because  it  was 
a  promise  that  another  person  should  perform  his  obligation.  But, 
looking  at  the  substance  of  the  transaction,  we  see  that  the  defend- 
ant paid,  in  this  manner,  a  part  of  the  price  of  a  horse  sold  to  him- 
self. In  a  sense  merely  formal,  he  agreed  to  answer  for  the  debt 
of  Cardell.  In  reality  he  undertook  to  pay  his  own  vendor  so  much 
of  the  price  of  the  chattel,  unless  a  third  person  should  make  the 
payment  for  him,  and  thereby  discharge  him."  In  Bruce  v.  Burr, 
defendant  contracted  to  sell  and  deliver  to  the  plaintiff  a  quantity  of 
books,  receiving  in  payment  therefor  of  the  plaintiff  the  promis- 
sory note  of  one  Lund.  At  the  time  of  the  transaction  the  plaintiff 
orally  guaranteed  that  Lund  was  responsible,  and  that  the  note 
would  be  paid  at  maturity.  It  was  held  that  the  guaranty  was  not 
within  the  statute  of  frauds. 

Here  the  money  was  delivered  to  the  defendant  for  his  own  bene- 
fit, and  the  Marsh  note  was  delivered  to  and  received  by  the  plain- 
tiff as  a  mode  of  paying  the  plaintiff  for  the  money  thus  had.  The 
defendant's  promise  may  be  regarded,  in  effect,  not  as  a  collateral 
promise  to  answer  for  the  default  of  Marsh,  but  as  a  promise  to  pay 
the  plaintiff  for  the  money  he  had  had,  in  case  Marsh  did  not  pay 
him,  like  the  promise  of  one  to  pay  his  own  debt,  in  case  a  third 
person  did  not  pay  it.  Within  the  principles  laid  down  in  the  authori- 
ties above  cited,  such  a  promise  is  not  within  the  statute. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur,  except  Rapallo,  J.,  absent. 

Judgment  affirmed. 

Accord :  Clay  Lumber  Co.  v.  Hart's  Branch  Coal  Co.,  174  Mich.  613,  140 
N.  W.  912 ;  Clopper  v.  Poland,  12  Nebr.  69,  10  N.  W.  538 ;  Malone  v.  Keener, 
44  Pa.  107 ;  Wyman  v.  Goodrich,  26  Wis.  21 ;  King  v.  Summitt,  73  Ind.  312,  38 
Am.  Rep.  145. 

But  see  Dows  v.  Swett,  120  Mass.  332. 

When  a  purchaser  of  property  agrees  with  the  vendor  to  assume  and  pay 
certain  debts  of  the  vendor,  the  promise  is  not  within  the  statute.  "This  rests 
not  only  upon  the  proposition  that  a  promise  to  a  debtor  to  pay  his  debt  is  not 
within  the  statute,  but  also  upon  the  further  fact  that  it  is  the  promisor's  own 
debt  which  he  agrees  to  pay  bv  extinguishing  the  debt  of  another."  Wilson 
v.  Bevans,  58  111.  232 ;  Clinton  Nat.  Bank  v.  Studeman,  74  Iowa  104,  37  N.  W. 
112;  Wear-Boogher  Dry-Goods  Co.  v.  Kelly,  84  Miss.  236,  36  So.  258;  Keyes 
v.  Allen,  65  Vt.  667,  27  Atl.  319;  Skinker  v.  Armstrong,  86  Va.  1011,  11  S.  E. 
977;  Green  v.  Hadfield,  89  Wis.  138,  61  N.  W.  310;  Todd  v.  Tobey,  29  Maine 
219. 

Such  promise  if  made  only  to  the  debtor  is  enforceable  by  the  creditor  for 
whose  benefit  it  is  made.  Morgan  v.  Overman  Silver  Min.  Co.,  37  Cal.  534; 
Johnson  v.  Knapp,  36  Iowa  616;  Thompson  v.  Thompson,  4  Ohio  St.  333; 
Campbell  v.  Smith,  71  N.  Y.  26,  27  Am.  Rep.  5. 


206  THE    STATUTE    OF    FRAUDS 

SECTION  10.    PROMISE  OF  DEL  CREDERE  AGENT 

WOLF  &  HENRICKS,  v.  KOPPEL 
5  Hill  (N.  V.)  458  (1843). 

Error  to  the  New  York  C.  P.,  where  Koppel  sued  Wolff  &  Hen- 
ricks,  to  recover  the  price  of  certain  goods  alleged  to  have  been  sold 
by  the  latter  as  factors  acting  under  a  del  credere  commission.  The 
agreement  del  credere  was  by  parol ;  and  one  point  made  in  the  court 
below  was,  that  the  defendants'  engagement,  not  being  in  writing, 
was  void  by  the  statute  of  frauds.  The  court  held  otherwise ;  and, 
after  judgment  in  favor  of  the  plaintiff,  the  defendants  sued  out  a 
writ  of  error. 

By  the  court,  Cowen,  J. :  It  is  objected  that  the  contract  of  a 
factor,  binding  him  in  the  terms ■  implied  by  a  del  credere  commis- 
sion, .is  within  the  statute  of  frauds,  and  should  therefore  be  in  writ- 
ing. Such  is  the  opinion  expressed  by  Theobald  (Pr.  and  Surety, 
64,  5)  and  in  Chit,  on  Contr.  209,  10  Am.  ed.  of  1842.  The  question 
was  also  mooted  in  Gall  v.  Comber  (IB.  Moor.  279),  but  not  de- 
cided as  seems  to  be  implied  in  the  careless  manner  in  which  the  case 
is  quoted  by  Chitty.  (8  Taunt.  558,  S.  C.)  All  the  authority  pre- 
sented on  the  argument  grows  out  of  the  nature  of  the  contract  as 
held  by  the  K.  B.  in  Morris  v.  Cleasby  (4  Maule  &  Selw.  556, 
574,  5).  That  case  certainly  defines  the  liability  of  the  factor  some- 
what differently  from  what  several  previous  cases  seem  to  have 
done.  The  effect  of  acting  under  the  commission  is_said_io  bejjrat 
the  factor  becomes  a  guarantor  of  the  debts  which  are  created;  that 
is  to  say,  they  are  debts  due  to  the  merchant,  and  the  factor's  en- 
gagement is  secondary  and  collateral,  depending  on  the  fault  of  the 
debtors,  who  must  first  be  sought  out  and  called  upon  by  the  mer- 
chant. (See  also  Hornby  v.  Lacy,  6  Maule  &  Selw.  166,  171,  2; 
Peele  v.  Northcote,  7  Taunt.  484,  1  B.  Moor.  178,  S.  C. ;  Leverick 
v.  Meigs,  1  Cowen,  645,  664.)  On  this  we  have  the  opinion  of 
learned  writers  that  if  the  agreement  del  credere  be  made  without 
writing,  the  case  comes  within  the  statute.  On  the  other  hand,  ap- 
proved writers  assert  that  this  is  not  so.  (1  Beawes  46;  6th  Lond. 
ed. ;  3  Chit.  Commercial  Law,  220,  1.)  It  is  true,  these  latter  go  on 
the  more  stringent  obligation  supposed  by  Lord  Mansfield ;  that  of 
a  principal  debtor  on  the  part  of  the  factor,  the  accessorial  obligation 
lying  rather  on  the  purchaser.  This  view  of  the  matter  was  no 
longer  correct  after  the  cases  I  have  mentioned  were  decided.  The 
consequence  sought  to  be  derived,  however,  by  writers,  is  merely 
speculative ;  and  the  contrary  has  of  late  been  directly  held  by  the 
Supreme  Court  of  Massachusetts,  in  Swan  v.  Nesmith  (7  Pick. 
220).    It  is  said  this  was  without  the  court  being  aware  of  Morris 


PROMISE  OF  DEL  CREDERE  AGENT  207 

v.  Cleasby.  Be  that  as  it  may,  they  seem  to  have  been  fully  aware 
of  the  rule  laid  clown  in  that  case,  and  to  have  recognized  it  as  cor- 
rect. They  considered  the  obligation  as  a  guaranty.  But  a  guaranty, 
though  by  parol,  is  not  always  within  the  statute.  Perhaps,  after 
all,  it  may  not  be  strictly  correct  to  call  the  contract  of  the  factor  a 
guaranty,  in  the  ordinary  sense  of  that  word.  The  implied  promise 
of  the  factor  is  merely  that  he  will  sell  to  persons  in  good  credit  at 
the  time ;  and  in  order  to  charge  him,  negligence  must  be  shown. 
He  fakes  an  additional  commission,  however,  and  adds  to  his  obli- 
gation that  he  will  make  no  sales  unless  to  persons  absolutely  sol- 
vent ;  in  legal  effect,  that  he  will  be  liable  for  the  loss  which  his  con- 
duct may  bring  upon  the  plaintiff,  without  the  onus  of  proving  neg- 
ligence. The  merchant  holds  the  goods,  and  will  not  part  with  them 
to  the  factor  without  this  extraordinary  stipulation,  and  a  commis- 
sion is  paid  to  him  for  entering  into  it.  What  is  this,  after  all,  but 
another  form  of  selling  the  goods?  Its  consequences  are  the  same  in 
substance.  Instead  of  paying  cash,  the  factor  prefers  to  ctontract  a? 
debt  or  duty  which  obliges  him  to  see  the  money  paid.  This  debt" 
oT^futyis  his  own,  and  arises  from  an  adequate  consideration.'  It 
is  contingent,  depending  on  the  event  of  his  failing  to  secure  it 
through  another — some  future  vendee,  to  whom  the  merchant  is 
first  to  resort.  Upon  nonpayment  by  the  vendee  the  debt  falls  abso- 
lutely on  the  factor.  As  remarked  by  Parker,  C.  J.,  in  Swan  v. 
Nesmith,  the  form  of  the  action  does  not  seem  to  be  material  in 
such  case ;  that  is  to  say,  whether  the  merchant  sue  for  goods  sold, 
or  on  the  special  engagement.  The  latter  is  perhaps  the  settled  form  ; 
but  still  the  action  is,  in  effect,  to  recover  the  factor's  own  debt.  In 
the  late  case  of  Johnson  v.  Gilbert  (4  Hill  178)  the  defendant,  in 
consideration  of  money  paid  for  him  by  the  plaintiff,  assigned  a 
chattel  note  and  guaranteed  its  payment.  In  such  a  case  the  declara- 
tion must  be  on  the  guaranty  to  pay  the  debt  of  another ;  but  this  is 
so  in  form  merely.  \Ye  held  that  the  contract  was  to  pay  the  de- 
fendant's own  debt ;  that  it  was  not  a  contract  to  pay  as  the  surety 
of  another.  All  such  contracts  and  man)-  others  are.  ia  Form,  to 
payTtiellebt  of  another,  and  so  literally  within  the  statute,  but  with- 
out its  intent.  A  promise  by  A  to  I)  that  the  former  will  pay  a  debl 
due  IroiTr-the  latter,  is  not  within  the  meaning,  though  it  is  within 
the  words.  (Conkey  v.  Hopkins,  17  John.  113;  Eastwood  v.  Ken- 
yon,  11  Adolph  &  Ellis  438.)  So  are  a  numerous  class  of  cases, 
where  the  promise  is  made  in  consideration  of  the  creditor  relin- 
quishing some  lien,  fund  or  security.  (Theobald  Pr.  and  Surety,  45, 
and  the  cases  there  cited.)  The  merchant  gives  up  his  goods  to  be 
sold,  and  pays  a  premium.  Is  not  this  in  truth  as  much  and  more 
than  many  of  those  cases  require  which  go  on  the  relinquishment  of 
a  security?  Suppose  a  factory  agrees  by  parol  to  sell  for  cash,  but 
gives  a  credit.  His  promise  is  virtually  that  he  will  pay  the  amount 
of  the  debt  he  thus  makes.   Yet  who  would  say  his  promise  is  within 


208.  THE    STATUTE   OF    FRAUDS 

the  statute?  The  amount  of  the  argument  for  the  defendant  would 
seem  to  be  that,  an  agent  for  making  sales,  or  indeed  a  collecting 
agent,  can  not,  by  parol,  undertake  for  extraordinary  diligence,  be- 
cause he  may  thus  have  the  debt  of  another  thrown  upon  him.  But 
the  answer  is,  that  all  such  contracts  have  an  immediate  respect  to 
his  own  duty  or  obligation.  The  debt  of  another  comes  incidentally 
as  a  measure  of  damages. 
Judgment  affirmed. 

Accord:  Couturier  v.  Hastie,  8  Exch.  40;  Sutton  v.  Grey,  [18941  1  Q.  B.  D. 
285;  Swan  v.  Nesmith,  7  Pick.  (Mass.)  220,  19  Am.  Dec.  282;  Bullowa  v. 
Orgo,  57  N.  J.  E.  428,  41  Atl.  494;  Sherwood  v.  Stone,  14  N.  Y.  267. 


(  >H^' 


CHAPTER  III 

COMMERCIAL    GUARANTIES 

SECTION  1.   SPECIAL  GUARANTY 

JOHN  TAYLOR  ET  AL.  v.  CHAS.  W.  WETMORE- 
10  Ohio  490  (1841). 

This  is  an  action  of  assumpsit. 

The  declaration  contains  two  special  counts.  In  the  first,  it  is 
averred  that  one  C.  D.  Farrar,  on  the  26th  of  November,  1836, 
being  desirous  of  purchasing  a  general  assortment  of  goods  in  the 
city  of  Pittsburgh,  for  a  retail  country  store,  on  a  credit,  and  being 
unknown  to  the  business  men  of  said  city,  applied  to  the  defendants, 
Messrs.  Wetmore,  then  doing  business  at  Cuyahoga  Falls,  in 
Portage  county,  for  a  general  letter  of  credit  directed  to  some  one  or 
more  of  their  correspondents  in  the  city  of  Pittsburgh,  by  means  of 
which  the  said  Farrar  might  be  enabled  to  make  his  purchase ;  and 
the  said  defendants  upon  such  application  made  and  delivered  to  Mr. 
Farrar  a  letter  of  credit,  or  written  guaranty,  addressed  to  Messrs. 
A.  D.  McBride  &  Co.,  merchants,  in  Pittsburgh,  in  the  words  foK 
lowing : 

"Cuyahoga  Falls,  November  26,  1836. 
"Messrs.  A.  D.  McBride  &  Co. : 

"Gentlemen — Mr.  C.  D.  Farrar  has  concluded  to  purchase  a 
few  goods ;  we  have  that  confidence  in  Mr.  Farrar  that  we  will  say 
that  we  will  be  responsible  to  the  amount  of  two  thousand  dollars 
for  goods  delivered  to  him.   We  are,  truly, 

"C.  W.  &  S.  D.  Wetmore." 

And  which  said  letter,  the  plaintiff's  aver,  was  taken  by  Mr.  Far- 
rar-^and  presented  to  Messrs.  McBride  &  Co.  at  Pittsburgh,  who 
retained  it  as  security  for  themselves  and  such  other  merchants  in 
the  said  city  as  should  at  that  time,  and  on  the  faith  of  said  guar- 
anty, sell  goods  on  a  credit  to  the  said  Farrar. 

It  is  also  averred  that  Mr.  Farrar  was  unable  to  obtain  a  general 

assortment  aLgpods  from  the  house  of  the  Messrs.  McBrides,  whose 

business  was  confined  to  that  of  grocers,  and  therefore  he  made 

application  to  the  plaintiffs  upon  the  strength  of  the  said  guaranty 

14 — De  Witt. 

209 


210 


COMMERCIAL    GUARANTIES 


then  in  the  hands  of  McBride  &  Co.,  referring  the  plaintiffs  to  the 
house  of  McBride  &  Co.  and  to  the  said  guaranty;  that  the  plain- 
tiffs did,  in  fact,  call  upon  McBride  &  Co.,  examined  the  letter  of  \ 
credit,  and  being  satisfied  with  their  statements  in  regard  to  the 
responsibility  of  the  defendant  and  of  the  guaranty,  in  considera- 
tion thereof  sold  and  delivered  to  Mr.  Farrar,  upon  a  credit  of  six 
months,  a  bill  of  dry  goods  amounting  to  seven  hundred  and  sixty 
dollars  and  seventy-five  cents;  of  all  which  the  defendants  had  due 
and  timely  notice.  The  plaintiffs  then  aver  that  the  credit  has  ex-j 
pired  and  that  Farrar  has  omitted  to  pay,  etc. 

Wood,  J. :  Under  the  averments  in  the  declaration,  and  the  testi- 
mony submitted,  are  the  plaintiffs  entitled  to  judgment?  And  I  may 
here  remark,  in  the  outset  in  this  case,  that  I  know  of  no  arbitrary 
rule  applicable  to  actions  founded  upon  mercantile  guaranties,  which 
creates  obligations  between  the  parties  to  which  they  have  neither 
expressly  nor  impliedly  assented.  In  all  actions  founded  in  con- 
tract, the  agreement  as  set  forth  must  be  proved,  or  the  circum- 
stances existing  between  the  parties  must  be  such  as  to  leave  it 
clearly  to  be  inferred.  In  enforcing  them,  courts  of  justice,  though 
they  may  sometimes  be  confined  by  technical  rules,  always  endeavor 
to  ascertain  the  understanding  and  intentions  of  the  parties,  and 
these  are  considered  as  the  essence  of  their  agreements  in  carrying 
them  into  execution.  [Mercantile  guaranties  are  either  general  or 
special;  though  a  single  letter  of  credit  may  bear  upon  its  face  both 
of  these  distinctions.  It  may  be  general  as  to  the  whole  world,  to 
whom  the  bearer  may  be  accredited,  and  to  any  portion  of  whom, 
at  his  own  option  he  may  make  the  guarantor  a  debtor,  and  special 
as  to  the  amount  of  the  credit,  or  unlimited  or  general  in  the  amount, 
Vand  special  as  to  the  parties. 

The  first  inquiry  which  arises  here  is  whether  the  guaranty  in 
question  is  not  special  as  to  persons.  )Tti<^  directed  \q  thp  h™""^  nf 
McBride  &  Co.  in  the  city  of  Pittsburgh,  and  nothing  upon  its  face 
evincing  an  intention  to  give  Farrar  credit,  or  to  incur  responsibility 
with  any  other  house. 

The  counsel  for  the  plaintiff  here  admit  that  a  surety  can  not  be 
held  beyond  the  terms  of  his  engagement,  but  they  insist  that,  al- 
though it  is  addressed  only  to  McBride  &  Co.,  as  it  does  not  say 
we  will  be  responsible  to  you,  it  is  a  letter  of  credit  to  any  other 
who  will  advance  the  goods.  It  seems  to  us  this  reasoning  is  more 
ingenious  than  sound.  The  guaranty  being  addressed  to  A.  D.  Mc 
Bride  &.  Co.,  it  is  to  theraTthe"  defendants  speak  when  they  say,  "We 
will  be  responsible  to  the  amount  of  $2,000,"  and  it  contains  no  gen 
eral  terms  by  which  either  Farrar  or  the  house  of  McBride  had  th 
authority  Jo_transfer  it  to  the  plaintiffs  and  they  to  make  the  de- 
fendants their  guarantors,  without  their  assent,  express  or  implied. 

Judgment  for  the  defendants.    "-* 


GENERAL    GUARANTY 


211 


Accord:  Taylor  v.  McClung.  2  Houst.  (Del.)  24;  Birckhead  v.  Brown,  5 
Hill  (N.  Y.)  634;  Evansville  Xat.  Bank  v.  Kaufman,  93  N.  Y.  273,  45  Am. 
Rep.  204;  Allison  v.  Rutledge,  13  Tenn.  193;  Stevenson  v.  McLean,  11  Up 
Can.   (C.  P.)  208;  King  v.  Batterson,  13  R.  I.  117. 

But  see  McNaughton  v.  Conkling,  9  Wis.  316. 

Likewise  a  guaranty  addressed  to  two  individuals  will  not  bind  the  guar- 
antor if  acted  upon  by  only  one.    Smith  v.  Montgomery,  3  Tex.  199. 

If  a  right  of  action  has  arisen  on  a  special  guaranty  it  may  be  assigned  to  a 
third  person.  Evansville  Nat.  Bank  v.  Kaufman,  93  N.  Y.  273,  45  Am.  Rep. 
204. 


SECTION  2.    GENERAL  GUARANTY 


JOHN  LOWRY  ET  AL.  v.  HIRAM  ADAMS  . 
22  Vt.  160  (1850). 


Poland,  J. :  From  the  bill  of  exceptions  and  other  papers  re- 
ferred to  in  this  ease  the  following  facts  appear  to  have  been  proved 
by  the  plaintiffs  at  the  trial  of  this  cause  in  the  county  court.  That 
F  X  Priory  was  the  son-in-law  nf  the  defendant^  and  some  time 
previous  to  September,  1846,  had  been  in  partnership  with  him  in  / 
mercantile  business  in  the  city  of  Vergennes,  and  had  purchased  the 
defendant's  interest  in  the  partnership  business  and  had  succeeded. 
him  therein.  That  in  the  month  of  September,  1846,  Drury ,  being 
about  to_go  to  the  city  of  New_3^ark_-ta. purchase- -his  u.Mtal  supply 
of_f^uJ_goods  for  his  store  in  Yergennes,  applied  to  the  defendant 
for  a  ktter  of_crearrt  to  enable  him  to  purchase  said  goods ;  and 
the  defendant,  on  trie  seventeenth  day  of  September,  1846,  gave  to 
Drury  a  writing  in  these  words,  to  wit :  "Mr.  E.  N.  Drury  is  buy- 
ing goods  in  New  York,  and  what  he  may  want,  more  than  he  pays 
for  himself,  I  will  be  responsible  for ;  Vergennes,  September  17, 
1846.  (Signed)  Hiram  Adams."  That  Drury  carried  said  writing 
to  the  city  of  New  York,  and,  on  the  twenty-second  day  of  Sep- 
tember, 1846,  presented J.he  same  to  Stearns  &  Johnson,  and,  upon 
the  strength  ^and  crecEt~bil  nCjpurchased  oj^tdiem  a  small  briTZof 
goodie  Then  Drury  left  said  paper  in  the  possession  of  Stearns  & 
Johnson,  and  at  the  same  time  told  them  that  he  should  buy  goods 
of  other  persons  in  New  York,  and  desired  Stearns  &  Johnson  .to 
keep  said  paper  in  their  possession  and  exhibit  it  to  those  who 
called  on  them  to  see  it,  and  to  hold  it  for  the  use  and  benefit  of  any 
person  from  whom  he  might  purchase  goods.  That  on  the  same  day, 
or  within  a  day  or  two  after,  Dr_ury  applied  to  the  plaintiffs  to  sell 
him  a  bill  of  goods  on  credit,  and  at  the  same  time  informed  them  of 
said_jyritmg^_aiid  that  he  had  deposited  the  same  with  Stearns  & 
Johnson  for  the  purposes  above  stated;  and  the  plaintiffs  thereupon 
sent  theiFcIerk  to  the  store  of  Stearns  &  Johnson  to  see  the  writing, 


212  COMMERCIAL    GUARANTIES 

and  it  was  exhibited  to  the  clerk  by  Stearns  &  Johnson,  and  a  copy 
of  it  was  taken  by  him  and  delivered  to  the  plaintiffs.  That  the 
plaintiffs,  being  satisfied  of  the  sufficiency  of  said  paper,  sold  and 
delivered  to  Drury  a  bill  of  goods  amounting  to  the  sum  of  $371.38, 
and  took  his  note  for  the  amount,  payable  in  four  months  from 
date  (September  25,  1846),  relying  upon  the  said  paper  as  their  se- 
curity for  payment.  That  on  the  ninth  day  of  November,  1846,  the 
plaintiffs,  upon  the  credit  and  faith  of  said  paper,  sold  and  delivered 
•  to  Drury  another  bill  of  goods  amounting  to  the  sum  of  $81.90. 
That  Drury  returned  with  said  goods  to  Vergennes,  and  continued 
to  carry  on  his  business  there  as  a  merchant  until  some  time  in  the 
winter  of  1847,  when  he  failed  and  became  insolvent,  and  the  plain- 
tiffs have  never  been  paid  for  said  goods.  The  plaintiffs  introduced 
evidence  tending  to  prove  that  between  the  sixth  day  of  December, 
1846,  and  the  second  Tuesday  of  the  same  month  they  gave  notice 
to  the  defendant  that  they  had  sold  and  delivered  the  above  men- 
tioned bills  to  Drury,  upon  the  faith  of  defendant's  said  guaranty, 
that  the  same  were  not  paid  for,  and  that  they  should  look  to  the 
defendant  for  payment,  and  also  proved  that  they  gave  notice  to 
the  defendant  on  the  twenty-fifth  day  of  January,  1847,  that  Drury 
had  not  paid  said  note.  The  county  court  ruled  that  the  plaintiffs 
could  not  maintain  their  suit  against  the  defendant  upon  said  guar- 
anty ;  whereupon  the  plaintiff  submitted  to  a  verdict  for  the  defend- 
ant, with  leave  to  except  to  the  ruling  of  the  court,  and  the  question 
is  now  before  us  upon  the  correctness  of  that  decision. 

1.  The  defendant  insists  that,  although  the  writing  signed  by 
him  was  not  addressed  to  any  particular  person,  yet  that,  when  it 
had  been  presented  by  Drury  to  Stearns  &  Johnson,  and  they  had 
given  Drury  credit  upon  the  faith  of  it,  its  object  and  purpose  had 
become  complete  and  executed,  and  that  thereafter  the  paper_was 
to  have  the  same  legal  effect  and  consequences  as  if  it  had  been 
originally  addressed  to  Stearns  &  Johnson  by  the  defendant. 

If  the  purpose  of  the  parties  were  such  that  it  might  have  been 
fulfilled  by  such  use  of  the  paper,  or  if  the  parties,  at  the  time  it 
was  executed,  might  reasonably  be  supposed  to  have  contemplated 
only  a  single  purchase  upon  the  credit  of  it  at  some  one  particular 
house,  this  position  of  the  defendant  is  doubtless  correct. _  It  be- 
comes important,  then,  to  ascertain  and  determine,  if  possible,  the 
true  object  and  intent  of  the  defendant  in  executing  the  paper  and 
delivering  it  to  Drury;  for  the  law  aims  in  all  cases  if  possible  to 
give  effect  to  and  carry  on  the  real  designs  of  the  parties  in  every 
species  of  contracts;  and  in  no  one  class  of  cases  have  the  courts 
gone  so  far  for  that  purpose,  as  in  those  of  merchantable  trans- 
actions and  securities. 

For  the  purpose  of  ascertaining  the  intent  of  the  parties  in  enter- 
ing into  any  contract,  courts  will  look  at  the  situation  of  the  par- 
ties making  it,  the  subject-matter  of  the  contract,  the  motives  of  the 


GENERAL    GUARANTY  213 

parties  in  entering  into  it,  and  the  object  to  be  attained  by  it;  and, 
even  in  cases  where  the  contract  is  reduced  to  writing,  will  allow 
all  these  circumstances  to  be  shown  by  parol  evidence,  if  the  intent 
of  the  parties,  upon  the  face  of  the  contract,  is  doubtful,  or  the  lan-j  - 
gutrge  used  by  them  will  admit  of  more  than  one  interpretation.; 
See  French  v.  Carhart,  1  Comst.  96,  and  observations  of  Jewett, 
Ch.  J.,  p.  102 ;  Chit,  on  Cont.  74,  and  notes.  When,  from  the  con- 
tract itself  and  all  the  surrounding  circumstances,  the  true  object 
and  intent  of  the  parties  has  been  ascertained,  courts  will  enforce  the 
contract  according  to  that  intent,  unless  there  be  found  in  the  way 
some  stubborn,  inflexible  rule  of  law,  absolutely  requiring  a  differ- 
ent determination. 

Considering  the  case  in  this  view,  what  was  the  intention  and 
understanding  of  the  defendant  at  the  time  he  made  and  delivered 
the  guaranty,  or  letter  of  credit  in  question,  to  Drury?  Drury  was 
going  to  New  York  to  purchase  his  usual  fall  supply  of  goods  for 
the  business  of  a  country  store,  where  goods  of  every  variety  and 
description  are  usually  kept  for  sale.  The  defendant  had  been  a 
merchant  himself,  and  had  formerly  carried  on  the  mercantile 
business  in  the  same  store  then  occupied  by  Drury,  and  must  have 
known  that  it  would  be  impossible  for  Drury  to  have  supplied  him- 
self with  all  the  various  kinds  of  goods  usually  kept  for  sale  in  a 
country  store,  at  any  single  house  in  New  York,  and  that  he  must 
necessarily  make  purchases  of  goods  at  several  different  houses. 
The  defendant,  having  been  in  business  and  known  to  be  responsi- 
ble, under  this  state  of  things,  gives  to  Drury  a  general  letter  of 
credit  to  carry  to  New  York  addressed  to  no  one,  in  which  he  agrees 
to  be  responsible  for  the  goods  Drury  may  purchase,  more  than  he 
pays  for.  It  would  seem  from  the  writing  itself,  and  from  the  sit- 
uation of  the  parties,  impossible  for  any  one  to  doubt  wdiat  the  de- 
fendant really  intended  when  he  executed  the  paper  and  delivered 
it  to  Drury.  We  are  fully  satisfied  that  [his  object  must  hav.e.-been, 
and  that  he  intended,  to  give  to  Drury  the  necessary  credit  to  en- 
able him  to  purchase  his  fall  stock  of  goods  of  the  various  descrip- 
tions and  varieties  kept  in  a  country  store,  at  as  many  different 
houses,  and  of  as  many  dealers,  as  might  become  necessary  for  that 
purpose. 

Is  there,  then,  any  imperative  rule  of  law  in  the  way  of  giving 
effect  to  this  intention  of  the  parties,  and  which  will  prevent  these 
plaintiffs  who  sold  goods  to  Drury  upon  the  credit  and  faith  of  the 
defendant's  letter,  from  holding  the  defendant  liable,  because  an- 
other firm  had  previously  trusted  Drury  with  a  bill  of  goods  upon 
the  credit  of  the  same  letter?  No  case  has  been  shown  us,  and  the 
counsel  for  the  defendant  admits  that  after  a  laborious  search  he 
had  not  been  able  to  find  any  decided  case,  or  statement  by  any  ele- 
mentary writer  that,  upon  a  general  letter  of  credit,  like  the  present 
one,  the  signer  could  only  be  liable  to  the  person  who  gave  the  first 


214  COMMERCIAL    GUARANTIES 

credit  upon  it.  In  the  case  of  McCiung  et  al.  v.  Means,  4  Ham. 
Ohio  R.  193,  the  Supreme  Court  of  Ohio  seems  to  have  held  that, 
upon  a  guaranty  very  similar  to  the  present,  different  persons  might 
give  credit  upon  the  faith  of  it,  though  judgment  in  that  case  was 
given  for  the  defendant  upon  another  point.  We  do  not  find  that 
this  precise  point  has  been  adjudged  by  the  courts,  either  in  England 
or  in  this  country ;  but  in  many  cases  we  find  dicta  fully  warranting 
the  sustaining  of  such  action.  See  McLaren  v.  Watson's  Exr.,  26 
Wend.  436,  437,  by  Verplance,  Senator ;  Burckhard  v.  Brown,  5 
Hill  642.  See  also  opinion  of  Judge  Story,  in  note  to  Story  on 
Bills,  545  to  555  ;  Story  on  Cont.,  737,  and  cases  cited  in  notes ; 
Smith's  Merc.  Law.  448,  and  Am.  editor's  note ;  Lawranson  v. 
Mason,  3  C ranch  492 ;  Bradley  v.  Cary,  3  Greenl.  233.  Without  tak- 
ing further  space  upon  the  question,  we  are  not  able  to  discover  any 
principle  or  authority  by  which  we  are  precluded  from  giving  to 
the  defendant's  letter  of  credit  the  effect  we  are  satisfied  he  intended 
— that  is,  to  make  himself  responsible  to  each  and  every  person  who 
should  sell  goods  to  Drury,  relying  upon  the  faith  and  credit  of  it, 
and  that  he  became  liable  to  each  in  the  same  manner,  and  to  the 
"/  same  legal  effect  and  extent  as  if  hi.  had  given  a  separate  letter  to 
each.     *     *     * 

The  judgment  of  the  county  court  is  therefore  reversed  and  a  new 
trial  ordered. 

See  also  Pollock  v.  Helm,  54  Miss.  1,  28  Am.  Rep.  342 ;  Russell  v.  Wiggin, 
2  Story  C.  C.  213 ;  Union  Bank  v.  Coster,  3  N.  Y.  203,  53  Am.  Dec.  280;  Wat- 
son v.  McLaren,  19  Wend.  (N.  Y.)  557. 


SECTION  3.    CHANGE  OF  PARTIES 

v/ 

J.  STRANGE,  J.  DASHWOOD,  G.  T.  STEWARD,  J.  AGNEW 

AND  W.  McGEORGE,  SURVIVING  PARTNERS  OF 

JAMES  WALWYN,  DECEASED,  v.  LEE 

3  East  ASA  (1803). 

In  debt  on  bond,  the  plaintiffs  declared  as  surviving  partjiers_oL 
James  Walwyn,  to  whom  in  his  lifetime  with  themselves  as  bank- 
ers and  partners,  on  the  3d  of  March,  1800,  the  defendant  became 
bound  in  the  sum  of  i999.  The  defendant  craved  oyefoTTheTDohd, 
which  was  a  joint  and  several  bond  by  himself  and  one  Benjamin 
Blyth ;  and  of  the  condition ;  which,  reciting  "that  Blyth  intended 
forthwith  to  open  an  account  with  Walwyn,  Strange  and  the  other 
plaintiffs,  as  his  bankers,  and  that  in  the  course  of  their  dealings 
and  transactions  he  might  become  indebted  to  them  for  money  ad- 
vanced on  bills,  bonds,  notes,  or  other  securities,  or  upon  drafts  or 


'J  01  e 

fl  CHANGE    OF    PARTIES  ZlO 

notes  drawn  or  issued  by  him,  Blyth,  upon  or  made  payable  at  the 
banking-house  of  the  said  Walwyn,  Strange,  etc.,  and  for  interest 
and  commission,  etc.,  witnessed,  that  if  the  defendant  and  Blyth, 
and  their  or  either  of  their  executors,  etc.,  should  from  time  to 
time  thereafter  on  demand  pay  to  the  said  Walwyn,  Strange,  etc., 
or  either  of  them,  all  and  every  sums  of  money  which  should  or 
might  at  any  time  or  times  thereafter  become  due  to  them  from 
Blyth  for  money  advanced  to  him,  or  for  his  use,  upon  any  bills, 
etc.,  drawn  or  issued  by  Blyth  upon  or  made  payable  at  the  bank- 
ing-house of  Walwyn,  Strange,  etc.,  or  for  interest  on  the  money 
advanced  by  them  as  aforesaid  from  the  times  of  advancing  the 
same  respectively  until  repayment  thereof,  or  for  commission,  etc., 
or  otherwise  howsoever ;  then  the  obligation  to  be  void,  etc.  The  de- 
fendant then  pleaded  (l)  non  est  factum;  (2)  performance  gen- 
"erally  in  the  words  of  the  condition,  i.  e.,  payment  to  Walwyn, 
Strange,  etc.,  of  all  sums  which  became  due  to  them  from  Blyth  ;  (3  ) 
that  Walwyn.,  Strange,  etc.,  and  the  other  plaintiffs,  before  and  on 
the  3(L_a£-_March,  1800,  carried  on  the  trade  and  business  of  bank- 
ers, as  partners  on  their  own  account  and  in  their  own  names  only, 
amTlioTTrTpartnership  with  any  other,  and  that  they  so  continued 
to  carry  on  the  same  till  the  9th  of  October  following,  when  Wal- 
wyn died.  That  at  the  death  of  Walwyn  there  was  not  due  from 
Blyth  to  Walwyn,  Strange,  etc.,  any  money  for  money  advanced 
to  him,  or  for  his  use,  upon  any  bills,  etc.,  drawn  or  issued  by 
Blyth  upon  or  made  payable  at  the  banking-house  of  Walwyn, 
Strange,  etc.,  or  for  interest,  etc.,  or  commission,  etc.,  or  otherwise 
howsoever. 

The  replication  joined  issue  on  the  first  plea,  and  as  to  the  sec- 
ond, protesting  that  Blyth  had  not  paid  to  Walwyn,  Strange,  etc., 
the  sums  which  from  time  to  time  became  due  to  them,  etc.,  assigned 
for  breaches  (1)  that  after  the  making  of  the  writing  obligatory, 
and  in  the  lifetime  of  Walwyn,  advanced  to  Blyth  upon  his  bills, 
etc.,  payable  at  their  banking-house,  etc.,  in  the  lifetime  of  Walwyn, 
in  £250  for  interest  and  commission,  etc.,  which  sums  Blyth  did  not 
on  demand  pay  to  Walwyn,  Strange,  etc.,  in  the  lifetime  of  Walwyn, 
or  since  his  death,  to  the  plaintiffs,  although  demanded,  etc;  (2) 
that  after  the  making  of  the  writing  obligatory,  and  after  the  death 
of  Walwyn,  viz.,  on  the  several  days  between  the  10th  of  October, 
1800,  and  the  31st  of  December,  1801,  the  plaintiffs,  survivors  as 
aforesaid,  advanced  and  paid  to  Blyth  and  for  his  use,  upon  divers 
bills  and  notes  issued  by  Blyth  upon  and  made  payable  at  the  bank- 
ing-house of  the  plaintiffs,  Strange,  etc.,  survivors  as  aforesaid, 
£6,000;  and  that  after  there  became  due  from  Blyth  on  the  several 
days,  etc.,  between  the  10th  of  October,  1800,  and  the  31st  of  De- 
cember, 1801,  to  the  plaintiffs  Strange,  etc.,  a  further  sum  of  £200 
for  the  interest  of  money  advanced  by  them  as  last  aforesaid,  and 
for  commission   for  transacting  business,  etc. ;   which   sums   Blyth 


216  COMMERCIAL    GUARANTIES 

did  not  on  demand  pay  to  the  said  plaintiffs.  Replication  as  to  the 
third  plea,  that  at  the  time  of  Walwyn's  death,  there  was  due  and 
owing  from  Blyth  to  Walwyn,  Strange,  etc.,  in  the  lifetime  of 
Walwyn,  £6,000  as  well  for  money  advanced  to  Blyth  upon  certain 
bills,  etc.,  made  payable  at  the  banking-house  of  Walwyn,  Strange, 
etc.,  as  for  interest  thereon  and  commission,  etc.  On  all  these  issues 
were  taken  and  joined. 

The  cause  was  tried  at  the  Sittings  after  Michaelmas  term  before 
Lord  Ellenborough,  C.  J.,  when  a  verdict  was  found  for  the  plain- 
tiffs, subject  to  the  opinion  of  the  court  on  the  following  case. 

Espinasse  for  the  plaintiff,  upon  the  first  general  question,  con- 
tended that  the  defendant  was  liable  upon  his  bond,  notwithstand- 
ing the  change  of  partners  in  the  house,  to  which  the  security  was 
originally  given,  by  the  death  of  one  partner  and  the  introduction 
of  another.  The  obligation  was  meant  to  be  given  to  the  parties,  not 
personally  or  individually,  but  as  a  house  of  trade,  without  regard  to 
the  particular  persons  who  might  from  time  to  time  constitute  the 
partnership.  Thus  being  the  manifest  intention  of  the  parties,  the 
court  will  give  effect  to  it  without  looking  critically  to  the  mere 
words  of  the  obligation,  in  which  the  individuals  are  merely  named 
as  descriptive  of  the  banking-house ;  and  he  cited  Co.  Lit.  s.  282 ; 
Bache  v.  Proctor,  Dougl.  382 ;  Teat's  Case,  Cro.  Eliz.  7 ;  and  partic- 
ularly Barclay  v.  Lucas  (M.  24  Geo.  3  B.  R.,  cited  in  Barker  v. 
Parker,  1  Term  Rep.  291),  where  a  bond  for  the  fidelity  of  a  clerk, 
who  was  taken  into  the  service  of  the  obligees  as  a  clerk  in  their 
shop  and  counting-house,  was  holden  not  to  be  discharged  by  the 
obligee  taking  another  partner  into  their  house ;  and  that  the 
obligees  might  recover  from  the  surety  on  his  bond  money  received 
by  the  clerk  after  such  change  of  partners;  such  bond  being  meant 
only  as  a  security  to  the  house  of  the  obligees. 

Moore,  contra,  was  stopped  by  the  court. 

Lord  Ellenborough,  C.  J. :  The  court  will  no  doubt  construe 
the  words  of  the  obligation  according  to  the  intent  of  the  parties  to 
be  collected  from  them ;  but  the  question  is,  what  the  intent  was  ? 
The  defendant's  obligation  is  to  pay  all  sums  due  to  them,  on  ac- 
courit  of  their  advances  to  Blyth.  Now  who  are  "them"  but  the 
persons  before  named,  among  whom  is  James  Walwyn,  who  then 
constituted  the  banking-house,  and  with  whom  the  defendant  con- 
tracted/ The  words  will  admit  of  no  other  meaning.  And  indeed 
with  respect  to  any  intent  which  parties  entering  into  contracts  of 
this  nature  may  be  supposed  to  have,  it  may  make  a  very  material 
difference  in  the  view  of  the  obligor,  as  to  the  persons  constituting 
the  house  at  the  time  of  entering  into  the  obligation,  and  by  whom 
the  advances  are  to  be  made  to  the  party  for  whom  he  is  surety.  For 
a  man  may-  very  well  agree  to  make  good  such  advances,  knowing 
that  one  of  the  partners,  on  whose  prudence  he  relies,  will  not  agree 
to  advance  money  improvidently;    The  characters,  therefore,  of  the 


CHANGE    OF    TARTIES  217 

several  partners  may  form  a  material  ingredient  in  the  judgment  of 
the  obligor  upon  entering  into  such  an  engagement.  But  with  a 
small  shade  of  difference  in  Barclay  v.  Lucas,  where  some  expres- 
sions occur  that  may  perhaps  be  difficult  to  reconcile  with  the  other 
authorities,  I  consider  this  question  concluded  by  the  cases  of  Ar- 
lington v.  Merrick,  2  Saund.  412 ;  Wright  v.  Russell,  2  Black.  934, 
and  3  Wills.  532,  and  Barker  v.  Parker  (Term  Rep.  287).  It  may 
be  observed,  however,  that  in  Barclay  v.  Lucas,  the  words  were 
different  from  the  present  case ;  the  clerk  was  to  be  taken  into  the 
service  of  the  obligees  as  a  clerk  in  their  shop  and  counting-house, 
which  might  be  supposed  to  mean  the  same  house,  however  the  in- 
dividual partners  might  change.  But  without  considering  whether 
that  were  the  true  construction  of  those  words,  it  is  enough  to  say 
that  there  are  no  such  words  here.  But  we  are  now  desired  to 
construe  an  obligation  to  be  answerable  for  money  due  to  them 
(certain  partners  having  been  before  named)  to  mean  money  due 
to  any  part  of  them,  a  construction  which  would  be  contrary  to 
the  words  of  the  instrument ;  what  is  contended  for  is,  to  make  this 
a  bond  to  the  persons  then  constituting  the  banking-house  and  their 
successors,  which  can  not  be  admitted. 

Lawrence,  J. :     A  bond  may  be  drawn  with  the  condition  now 
insisted  on  in  argument  by  th^  plaintiff's  counsel  for  the  obligor  to 
be  answerable  not  only  to  the  present  but  fo  all  future  partners  in  - 
the  house  ;  but  that  has  not  been  done  here.  O 

Per  curiam. 

Postea  to  the  defendant. 


WESTON  ET  AL.  v.  BARTON  — 

4  Taunt.  673  (1812). 

This  was  an  action  on  a  joint  and  several  bond,  given  by  Paul 
Catterall  and  John  Watson  the  younger,  as  principals,  and  John 
Watson  the  elder,  and  the  defendant,  as  sureties  to  William  Weston 
the  elder,  Sir  John  Pinhorn,  James  Newsome,  and  William  Weston 
the  younger,  the  plaintiffs,  and  William  Golding,  since  deceased,  in 
the  penal  sum  of  £6,000.  The  condition  of  the  bond,  upon  oyer, 
appeared  tobeTThat  whereas  all  the  obligors  had  applied  to  the  five 
obligees,  and  requested  them,  in  their  capacity  of  bankers,  from 
time  to  time,  to  accept  and  discount  bills  of  exchange  and  prom- 
issory notes,  and  to  advance  and  pay  moneys,  for  Catterall  and 
Watson  the  younger,  and  for  their  use,  and  on  their  account  (such 
acceptances  and  discounts  not  exceeding  in  the  whole,  at  any  period 
of  time,  the  sum  of  £3,000)  which  the  five  obligees  had  consented 
to  do,  upon  being  indemnified  against  all  loss,  costs,  charges,  dam- 
ages, and  expenses,  by  reason  thereof ;' therefore,  if  the  obligors, 


218  COMMERCIAL    GUARANTIES 

or  any  or  either  of  them,  should,  at  all  times  thereafter,  upon  re- 
quest made,  pay  to  the  five  obligees,  their  executors,  administra- 
tors, or  assigns,  all  such  sum  and  sums  of  money,  as  at  any  time 
thereafter  should  be  paid  or  advanced  by  the  five  obligees,  or  any 
of  them,  unto  and  for  the  use,  or  on  the  account  of  Catterall  and 
"Watson  the  younger,  or  which  should  or  might  become  due  or 
owing  unto  the  five  obligees  by  or  from  Catterall  and  Watson  the 
younger,  by  reason  of  the  nonpayment  of  the  amount  of  any  bills 
of  exchange,  promissory  notes,  or  any  other  securities,  which 
should  thereafter  be  paid  by  Catterall  and  Watson  the  younger, 
into  the  hands  of,  or  be  accepted  by  the  five  obligees,  for  or  on  the 
account  of  Catterall  and  Watson  the  younger,  as  their  bankers,  upon 
discount,  or  otherwise,  or  for  interest,  commission,  postage,  nota- 
rial, and  other  charges  whatsoever;  and  also  if  the  obligors,  or 
either  of  them,  should,  at  all  times  thereafter,  effectually  keep  in- 
demnified the  five  obligees,  and  each  of  them,  their,  and  each  of 
their  heirs,  etc.,  against  all  loss,  costs,  charges,  damages,  and  ex- 
penses whatsoever,  which  they,  any,  or  either  of  them,  should  suf- 
fer, sustain,  expend,  or  be  put  to,  for  or  by  reason  of  the  non- 
payment of  any  such  bills,  promissory  notes,  or  other  securities,  or 
for  or  by  reason  of  any  of  their  dealings  or  transactions  as  bank- 
ers for  Catterall  and  Watson  the  younger,  or  in  any  wise  relating 
thereto,  or  otherwise,  not  exceeding  £3,000  and  costs,  postage,  com- 
mission, and  interest,  then  the  bond  should  be  void.  The  defendant 
pleaded  that  after  the  making  of  the  bond,  on  the  23d  day  of  July, 
1807,  William  Golding  died,  and  that  the  obligors  did,  at  all  times 
after  the  making  of  the  bond,  upon  request  made,  pay  to  the  five 
obligees  in  the  lifetime,  to  the  plaintiffs,  since  the  death  of  William 
Golding,  all  such  sums  of  money  as  at  any  time  after  the  making 
of  the  bond  were  paid  or  advanced  by  the  five  obligees,  or  any  of 
them,  in  the  lifetime  of  Golding,  unto  and  for  the  use,  and  on  ac- 
count of  Catterall  and  Watson  the  younger,  or  which  did  become 
due  and  owing  unto  the  five  '  obligees,  by  or  from  Catterall  and 
Watson  the  younger,  by  reason  of  the  nonpayment  of  the  amount 
of  any  bills  of  exchange,  promissory  notes,  or  any  other  securities 
which  were,  after  the  making  of  the  bond,  paid  by  Catterall  and 
Watson  the  younger,  into  the  hands  of,  or  accepted  by  the  five 
obligees,  for  or  account  of  Catterall  and  W'atson  the  younger,  as 
their  bankers,  upon  discount  or  otherwise,  or  for  interest,  commis- 
sion,  postage,  notarial,  and  other  charges,  whatsoever ;  and  also 
that  the  obligors  did,  at  all  times  after  the  making  of  the  bond,  ef- 
fectually keep  indemnified  the  five  obligees,  and  each  of  them, 
and  the  executors,  etc.,  of  Golding,  against  all  loss,  costs,  charges, 
damages,  and  expenses  whatsoever,  which  the  five  obligees,  or  either 
of  them,  their  or  either  of  their  assigns,  or  the  executors  or  admin- 
istrators of  Golding,  or  any  of  them,  did  suffer,  sustain,  expend  or 
were  put  to,  for  or  by  reason  of  the  nonpayment  of  any  such  bills, 


CHANGE    OK    PARTIES  219 

promissory  notes,  or  other  securities,  or  for  or  by  reason  of  any  of 
their  dealings  or  transactions  as  bankers  for  Catterall  and  Watson 
the  younger,  or  in  any  wise  relating  thereto,  or  otherwise,  not  ex- 
ceeding £3,000  and  costs,  postage,  commission,  and  interest,  accord- 
ing to  the  tenor  and  effect  of  the  condition.  The  plaintiffs  in  their 
replication  assigned  their  first  and  third  breaches  upon  transactions 
stated  to  have  taken  place  in  the  lifetime  of  Golding,  upon  both  of 
which  the  defendant  took  issue;  and  they  assigned  for  the  second 
breach  that  after  the  making  of  the  bond  and  the  death  of  Golding, 
£3,000  became  due  from,  and  yet  was  in  arrear  and  unpaid,  by  Cat- 
terall and  Watson  the  younger,  to  the  plaintiffs,  for  and  on  account 
of  divers  sums  of  money,  before  that  time,  and  after  the  making 
of  the  bond,  lent  and  advanced  by  the  plaintiffs,  after  the  death  of 
Golding,  unto,  and  for  the  use,  and  on  the  account  of  Catterall  and 
Watson  the  younger,  and  also  by  reason  of  the  nonpayment  of  the 
amount  of  divers  bills  of  exchange,  promissory  notes,  and  other 
securities,  which,  after  the  making  of  the  bond,  and  death  of  Gold- 
ing, were  paid  by  Catterall  and  Watson  the  younger  into  the  hands 
of,  and  accepted  by  the  plaintiffs,  and  also  for  interest,  commis- 
sion, postage,  notarial,  and  other  charges ;  and  they  assigned  for  a 
further  breach  of  the  condition,  that  after  the  making  of  the  bond, 
and  death  of  Golding,  the  plaintiffs  were  put  to  great  losses,  costs, 
charges,  damages,  and  expenses,  by  reason  and  on  account  of  the 
nonpayment  of  divers  such  bills,  promissory  notes,  and  securities 
as  aforesaid,  which  were  respectively  discounted,  accepted,  and  be- 
came due  and  payable,  after  the  death  of  Golding,  and  by  reason 
or  means  of  their  transactions  as  bankers  for  Catterall  and  Watson 
the  younger,  and  for  costs,  postage,  commission,  and  interest,  since 
the  death  of  Golding,  in  the  whole  amounting  to  other  £3,000  which 
was  still  in  arrear.  The  defendant  demurred  to  these  breaches,  and 
the  plaintiff  joined  in  demurrer. 

The  judgment  of  the  court  was  on  this  day  delivered  by  Mans- 
field,  Ch.  J. 

The  question  here  is,  whether  the  original  partnership  being  at 
an  end,  in  consequence  oF~tTTeT  death  of  Golding,  the  bond  is 
still  in  force  as  security  to  the  surviving  four;  or  whether  that 
political  personage,  as  it  may  be  called,  consisting  of  five,  being 
dead,  the  bond  is  not  at  an  end.  The  case  has  stood  over  in  conse- 
quence of  doubts  which  the  court  entertained  on  particular  expres- 
sions in  the  bond.  Many  cases  were  cited  at  the  bar;  and  the  result 
of  them  is,  that_generally  when  a  change  takes  place  in  the  number 
of  persons  to  whom  such  a  bond  is  given,  the  bond  no  longer  exists. 
These  decisions  certainly  fall  hard  on  the  obligees ;  for  I  believe  the 
general  understanding  is,  that  these  securities  are  given  to  the 
banking  house,  and  not  to  the  particular  individuals  who  compose 
it;  and  we  should  readily  so  construe  the  bond  if  the  words  would 
permit.    The  words  of  the  condition  on  which  the  question  depends 


220 


COMMERCIAL    GUARANTIES 


(and  which  his  lordship  now  read  over)  again  and  again  refer  to 
the  obligees'  capacity  of  bankers ;  they  were  bankers,  only  as  they 
were  partners  in  their  banking  house,  as  it  is  called,  and  this  se- 
curity is  conditioned  to  pay  any  money  advanced  by  "them  five  or 
either  of  them."  Taking  those  last  words  by  themselves,  it  might  at 
first  be  conceived  that  if  any  one  of  the  five  advanced  money,  this 
bond  should  secure  it,  but  the  words  are  afterwards  explained,  when 
it  is  seen  that  the  money  is  to  be  paid  to  the  five.  Now  it  could  never 
be  intended  that  money  advanced  by  one  of  them  singly,  should  be 
repaid  to  the  five ;  and  this  shews  that  the  word  "advanced  by 
them  or  any  or  either  of  them,"  must  be  confined  in  their  meaning 
to  money  advanced  by  any  or  either  of  them  in  their  capacity  of 
bankers,  on  behalf  of  all  the  five.  This,  then,  being  the  construc- 
tion of  the  instrument,  from  almost  all  the  cases,  in  truth  we  may 
say,  from  all  (for  though  there  is  one  adverse  case  of  Barclay  v. 
Lucas,  1  T.  R.  291,  the  propriety  of  that  decision  has  been  very 
much  questioned), , it  results  that  where  one  of  the  obligees  dies, 
the  security  is  at  an  end.  It  is  not  necessary  now  to  enter  into  the 
reasons  of  those  decisions,  but  there  may  be  very  good  reasons  for 
such  a  construction;! it  is  very  probable  that  sureties  may.beJiiduced 
to  enter  into  such  a  security,  by  a  confidence  which  they  repose  in 
the  integrity,  diligence,  caution,  and  accuracy  of  one  or  two  of  the 
partners.  In  the  nature  of  things  there  can  not  be  a  partnership 
consisting  of  several  persons,  in  which  there  are  not  some  persons 
possessing  these  qualities  in  a  greater  degree  than  the  rest;  and  it 
may  be,  that  the  partner  dying,  or  going  out,  may  be  the  very  per- 
son on  whom  the  sureties  relied ;  it  would  therefore  be  very  unrea- 
sonable to  hold  the  surety  to  his  contract,  after  such  change.  And 
though  the  sum  here  is  limited,  that  circumstance  does  not  alter 
the  case,  for  although  the  amount  of  the  indemnity  is  not  indefinite, 
yet  £3,000  is  a  large  sum;  and  even  if  it  were  only  £1,000  the  same 
ground  in  a  degree  holds,  for  there  may  be  a  great  deal  of  differ- 
ence in  the  measure  of  caution  or  discretion  with  which  different 
persons  would  advance  even  a  thousand  pounds ;  some  would  per- 
mit one  who  was  almost  a  beggar  to  extend  his  credit  to  that  sum ; 
others  would  exercise  a  due  degree  of  caution  for  the  safety  of  the 
surety:  and  therefore  we  are  of  opinion  that/as  to_such  sums  only, 
which  were  advanced  before  the  decease  of  Gokling,  can  an  in- 
demnity be  recovered  by  the  plaintiffs :  and  as  to  the  sums  claimed 
for  debts  incurred  since  his  decease,  the  judgment  must  be  for  the 
defendant. 

Judgment  for  the  defendant. 

See  also  Wright  v.  Russell,  3  Wils.  530;  Holland  v.  Teed,  7  Hare  56;  Dry 
v.  Davy,  10  Ad.  &  Ell.  30;  Bellairs  v.  Ebsworth,  3  Camp.  53. 


CHANGE    07    PARTIES  221 

BLACK  v.  ALBERY  ET  AL. 
89  Ohio  St.  240,  106  N.  E.  38  (1914). 

Walter  E.  Albery  and  Reno  P.  Sagar  brought  suit  in  the  court 
of  common  pleas  against  Samuel  L.  Black  and  Ned  A.  Thompson, 
alleging  that  on  the  26th  day  of  March,  1908,  the  plaintiffs  and  one 
L.  B.  Condit  were  partners  transacting  business  at  Groveport,  Ohio, 
as  the  Groveport  Creamery  Company ;  that  the  defendant  Thomp- 
son was  doing  business  as  the  Thompson  Creamery  Company ;  that 
upon  said  day  said  Albery,  Sagar  and  Condit,  as  parties  of  the  first 
part,  and  said  Thompson  as  party  of  the  second  part,  entered  into 
a  contract  whereby  the  parties  of  the  first  part  agreed  to  furnish  to 
the  party  of  the  second  part  for  one  year,  beginning  April  1,  1908, 
the  entire  output  of  their  creamery,  and  he  agreed  to  pay  for  the 
same  at  prices  named  in  the  contract. 

They  further  allege  full  performance  on  their  part  and  a  failure 
of  Thompson  to  pay  for  a  large  part  of  the  products  so  delivered 
to  him,  annexing  to  their  petition  an  account  of  the  items  so  deliv- 
ered but  not  paid  for.  A  recovery  was  sought  against  Thompson 
for  failure  to  perform  his  agreement  aforesaid,  and  against  Black 
as  surety  for  him,  Black's  undertaking  being  indorsed  upon  the 
contract  between  the  principal  parties,  and  being  in  the  terms  fol- 
lowing, to  wit :  "For  value  received  I  bind  myself  as  surety  for  the 
faithful  performance  of  the  above  contract  by  and  on  the  part  of 
said  N.  A.  Thompson." 

The  petition  further  alleges  that  after  the  making  of  said  con- 
tract, but  before  the  first  day  of  April,  when  it  was  to  become  op- 
erative, Condit  sold  and  transferred  to  the  plaintiffs  his  entire  in- 
terest in  the  property  and  business  of  the  Groveport  Creamery  Com- 
pany^ Black  demurred  generally  to  the  petition  and  his  demurrer 
was  overruled.  After  issues  of  fact  joined,  there  was  a  trial  and 
judgment  against  both  Thompson  and  Black.  Thompson  does  not 
here  complain  of  the  judgment  against  him.  Black  filed  a  petition 
in  error  in  the  circuit  court,  his  principal  assignment  of  error  be- 
ing the  overruling  of  his  demurrer  to  the  petition.  The  circuit 
court  affirmed  the  judgment  of  the  court  of  common  pleas. 

Shauck,  J. :  The  ground  upon  which  Black  challenges  the  va- 
lidity of  the  judgment  against  him  is  brought  into  plain  view  by 
his  demurrer  to  the  petition.  It  is  alleged  in  the  petition  that  the 
original  contract  was  executed  between  Albery,  Sagar  and  Condit, 
doing  business  as  partners  under  the  name  of  the  Groveport  Cream- 
ery Company,  of  the  first  part,  and  Thompson  of  the  second  part. 
lit  was  by  writing  indorsed  upon  that  contract  that  Black  assumed 
or  proposed  to  assume  the  liability  of  surety  for  Thompson,  and  his 
undertaking  was  to  the  parties  of  the  first  part  therein.     It  is  fur- 


222;  COMMERCIAL    GUARANTIES 

ther  alleged  that  after  the  making  of  the  contract,  but  before  April^ 
1,  when  by  its  terms  its  execution  was  to  commence  and  before  any 
credit  had  been  given  to  Thompson  in  reliance  upon  Black's  under- 
taking as  surety  for  him,  Condit  assigned  to  Albery  and  Sagar  his 
entire  interest  in  the  property  and  business  of  the  firm,  including 
his  interest  in  the  contract.  The  suit  is  brought  by  Albery  and 
Sagar,  and  their  petition  not  only  admits  the  dissolution  of  the  firm 
by  the  assignment  of  Condit's  interest  but  counts  upon  it  as  dis- 
pensing with  the  necessity  for  his  joining  in  the  action.  The  es- 
sential theory  of  the  case  presented  by  the  original  plaintiffs,  there- 
fore, is  that  in  a  contract  of  suretyship,  without  the  surety's  con- 
sent, a  substantial  change  has  been  effectively  made  in  the  parties 
adversary  to  him.  In  view  of  the  ancient  character  and  frequently 
recurring  relation  of  surety,  it  is  quite  natural  that  in  the  reported 
cases  are  found  many  elementary  principles  of  the  law,  relating  to 
the  liability  of  sureties  and  the  cases  illustrating  and  applying  them, 
from  which  tests  cf  the  soundness  of  this  view  may  be  derived. 
The  rules  by  which  the  surety's  liability  is  determined  have  regard 
to  the  fact  that  usually  he  derives  no  benefit  from  the  transaction 
and  he  is  bound  only  because  he  has  agreed  to  become  bound ;  there 
being  present  no  fact  which  would  tend  to  raise  an  implied  obliga- 
tion. It  is  required  that  his  undertaking  be  in  writing.  Since  he 
is  bound  only  because  he  has  agreed  to  be  bound/  it  logically  re- 
sults that  he  is  bound  only  as  he  has  agreed  to  be  bound.  From 
these  and  other  like  considerations  there  have  been  formulated 
and  approved  certain  suggestive  precepts  respecting  the  surety's  ob- 
ligation :  The  surety  is  the  favorite  of  the  law ;  the  surety  is  enti- 
tled to  stand  upon  the  letter  of  his  obligation;  the  surety's  defense 
is  complete  whenever  he  may  say,  "Into  this  contract  I  did  not 
enter."  It  is  a  subject  of  frequent  observation  that  the  differences 
between  opposing  counsel  do  not  relate  to  the  soundness  of  legal 
propositions  so  much  as  their  applicability  to  the  case  under  con- 
sideration. Many  of  the  propositions  made  and  the  authorities  cited 
in  the  briefs  for  the  defendants  in  error  may  be  disposed  of  by 
excluding  from  consideration  attributes  which  do  not  belong  to  the 
present  case.  It  is  not  a  case  for  recovery  upon  the  assignment  of 
a  claim  which  had  accrued  upon  a  contract  executed  before  its  as- 
signment. It  does  not  concern  the  meaning  of  the  terms  used  in  a 
contract  of  suretyship  into  which  the  parties  to  the  suit  have  con- 
fessedly entered.  Nor  does  the  case  present  the  considerations 
which  determine  the  liability  of  a  surety  upon  a  negotiable  instru- 
ment accepted  .by  the  payee,  thus  having  the  operation  and  effect  in- 
tended by  the  surety.  Nor  can  Black's  undertaking  be  likened  to  a 
general  letter  of  credit. 

The  reference  to  letters  of  credit  is,  however,  appropriate  because 
they  have  been  the  foundation  of  many  interesting  cases  upon  the 
subject  of  the  liability  of  sureties.    Counsel  seem  to  agree  that  guar- 


CHANGE    OF    PARTIES  223 

anties  and  letters  of  credit  are  special  or  general.  If  a  letter  of  the 
former  character  is  accepted  and  acted  upon  by  the  person  to  whom 
it  is  addressed,  the  undertaking  of  the  surety  is  complete.  If  the 
acceptance  is  by  another,  or  by  part  only  of  those  to  whom  the  let- 
ter is  addressed,  there  arises  no  contractual  relation,  for  it  is  the 
riglrE  of  one  who  contemplates  assuming  the  obligation  of  a  surety 
to  determine  not  only  for  whom,  but  also  to  whom  he  will  become 
bound.  If  in  the  present  iii-iMi.ee  Black  had  addressed  a  letter  of 
credit  to  the  three  parties  of  the  first  pari  offering  to  become  bound 
for  the  payment  of  a  balance  which  might  become  due  from  Thomp- 
son, and  his  letter  had  been  accepted  and  acted  upon  by  two  of 
them,  but  not  by  the  third,  would  there  be  a  contract  of  suretyship 
between  Black  and  the  two  acceptors?  In  the  courts  below  it  was 
not  perceived,  nor  is  it  here,  why  Black  should  choose  to  be  bound 
to  the  three  parties  rather  than  to  two  of  them,  but  the  admonition 
recurs,  the  surety  is  bound  only  according  to  the  terms  of  his  con- 
tract without  being  answerable  to  any  one  for  the  reasons  which 
induced  him  to  select  its  terms.  Numerous  and  interesting  cases 
show  that  the  surety  may  not  be  held  otherwise,  even  though  the 
obligation  upon  which  it  is  sought  to  charge  him  is  not  more  on- 
erous than  that  upon  which  he  became  bound  or  offered  to  become 
bound. 

In  Grant  v.  Naylor,  4  Cranch  224,  a  recovery  was  denied  to 
John  and  Jeremiah  Naylor  &  Co.  on  a  letter  of  credit  addressed  by 
the  maker  to  John  and  Joseph  Naylor  &  Co.,  although  it  was  shown 
that  there  was  no  such  house  as  that  addressed.  In  the  opinion 
the  chief  justice  said :  "That  the  letter  was  really  designed  for 
John  and  Jeremiah  Naylor  can  not  be  doubted,  but  the  principles 
which  require  that  a  promise  to  pay  the  debt  of  another  shall  be 
in  writing,  and  which  will  not  permit  a  written  contract  to  be  ex- 
plained by  parol  testimony,  originate  in  a  general  and  wise  policy, 
which  this  court  can  not  relax  so  far  as  to  except  from  its  operation 
cases  within  the  principles."  A  surety  upon  a  promissory  note  may 
interpose  as  a  defense  against  a  holder,  who  has  knowledge  of  the 
fact  that  it  was  the  intention  of  the  parties  that  it  should  be  dis- 
counted by  a  bank  where  it  was  made  payable,  that  the  note  after 
being  rejected  by  that  bank  was  indorsed  and  put  into  circulation 
contrary  to  the  intention  of  the  parties.  Numerous  decisions  of 
this  court  illustrate  the  scope  and  force  of  the  rule  that  the  surety 
is  entitled  to  stand  upon  the  letter  of  his  undertaking,  including 
his  designations  of  the  persons  who  may  become  his  creditors. 
Stone  v.  Vance,  6_OJiio  246;  Taylor  v.  Wetmore,  10  Ohio  4C)!); 
Clinton  Bank  v.  Ayres  &  Neil,  16  Ohio  283 ;  Knox  County  Bank 
v.  Lloyd's  Admrs.,  18  Ohio  St.  352. 

The  law  is  a  technical  science,  and  since  it  is  the  duty  of  the 
courts  to  administer  justice  according  to  the  law  with  reference  to 
which   the   parties   are   conclusively   presumed    to   have   conducted 


224  COMMERCIAL    GUARANTIES 

their  transaction,  a  surety  who  invokes  the  protection  afforded  him 
by  established  rules  should  not  be  denied  that  protection  upon  the 
ground  that  his  defense  is  technical.  Justice  administered  accord- 
ing to  the  peculiar  views  respecting  the  natural  rights  of  litigants 
which  may  be  entertained  by  persons  who,  for  the  time  being,  are 
engaged  in  the  exercise  of  judicial  functions,  would  not  afford 
a  secure  foundation  for  civil  institutions.  This  case  seems  clearly 
to  be  brought  within  the  principles  already  stated,  and  within  the 
decisions  cited,  by  the  consideration  that  in  legal  effect  Black's  for- 
mal guarantee  indorsed  upon  the  original  contract  was  never  ac- 
cepted or  acted  upon  by  the  three  parties  to  whom  he  had  offered 
to  become  bound,  and  to  whom  he  would  have  been  bound  if  they 
had  accepted  and  acted  upon  his  offer. 

These  views  lead  to  the  approval  of  Schoonover  v.  Osborne 
Brothers,  109  Iowa  453,  which  differs  in  no  substantial  aspect  from 
the  present  case.  The  very  careful  and  analytical  opinion  of 
Deemer,  Judge,  in  that  case  collects  and  classifies  many  other  au- 
thorities upon  the  subject  presented  and  shows  that  the  reasoning 
upon  which  the  present  judgment  is  sought  to  be  sustained  is  falla- 
cious. 

Judgment  reversed  and  demurrer  to  the  petition  sustained. 

Nichols,  C.  J.,  Johnson,  Donahue,  Wanamaker,  Newman  and 
Wilkin,  JJ.,  concur. 

Accord:  Cremer  v.  Higginson,  1  Mason  323;  Holmes  v.  Small,  157  Mass. 
221,  32  N.  E.  3 ;  Crane  Co.  v.  Specht,  39  Nebr.  123,  57  N.  W.  1015,  42  Am.  St. 
562;  Lamm  v.  Colcoid,  22  Okla.  493,  98  Pac.  355,  19  L.  R.  A.  (N.  S.)  901  n ; 
Penoyer  v.  Watson,  16  Johns.  (N.  Y.)  100;  Byers  v.  Hickman  Grain  Co.,  112 
Iowa  451,  84  N.  W.  500;  Sollee  v.  Meugy,  1  Bailey  (S.  Car.)  620;  Barnes  v. 
Barrow,  61  N.  Y.  39. 


/ 

BACKHOUSE  ET  AL.  v.  J.  C.  HALL 

6  Best  &  Smith  507  (1865). 

Blackburn,  J. :  Our  judgment  is  for  the  defendant.  The  action 
is  on  a  guarantee  bearing  date  the  25th  February,  1858.  (His  Lord- 
ship read  it.)  This  was  signed  by  the  defendant  and  another  per- 
son. For  some  time  before  the  guarantee  was  given  the  firm  of 
G.  W.  &  W.  J.  Hall  had  carried  on  business  as  shipbuilders.  Sev- 
eral changes  in  the  members  of  the  firm  had  been  occasioned  by 
death  and  otherwise ;  and  at  the  time  the  guarantee  was  given  two 
widows  and  one  G.  S.  Moore  were  carrying  on  the  business.  One 
of  the  widows  died,  at  which  period  i2,286,  Os,  9d  was  due  on  the 
balance  of  account,  for  which  the  surviving  members  of  the  firm 
were  responsible;  and  the  business  was  still  carried  on  by  them. 
The  death  was  not  known  to  the  plaintiffs  for  some  years,  though 


22- 

CHANGE    OF    PARTIES  ZZd 

it  was  known  to  the  defendant  at  the  time;  but  nothing  is  stated 
to  show  either  that  the  defendant  was  under  any  obligation  to  in- 
form the  banking-house  of  that  fact,  or  that  he  took  any  steps  to 
conceal  it.  The  plaintiffs  therefore,  not  having  heard  of  the  death, 
would  not  ask  for  a  fresh  security  and  stop  further  advances  if  re- 
fused. The  business  was  still  carried  on,  but  the  debt  ultimately 
exceeded  £5,000  due  from  the  firm,  not  composed  of  the  same  per- 
sons as  at  the  time  when  the  guarantee  was  given.  That  raises  the 
1  question  whether  the  defendant  is  bound  to  make  good  advances 
/by   the  banking-house   to   the   shipbuilding   firm,   consisting  at   the 

/  ttmeTbt  those  advances  of  persons  different  from  those  composing 

i    it  at  the  time  the  guarantee  was  given. 

V  Before  the  Mercantile  Law  Amendment  Act,  1856,  19  &  20 
Vict.,  ch.  97,  it  was  perfectly  established  by  cases  that|a  guarantee 
did  not  continue  in  force  after  a  change  in  the  firm  in  whose  favour 
it  was  given,  unless  it  appeared  by  its  terms  that  it  was  intended  it 
should  so  continue.  When  there  was  an  express  stipulation  that 
the  guarantee  was  with  the  firm  or  its  successors,  there  could  be  no 
question.  It  had  been  so  decided  in  Barclay  v.  Lucas,  3  Dougl. 
321,  1  T.  R.  291,  note  (a),  although  in  that  case  there  was  a  doubt 
whether  the  guarantee  sufficiently  expressed  that  it  was  to  be  a  con- 
tinuing one.  We  need  not  pronounce  if  that  decision  was  right  or 
not.  But  in  Metcalf  v.  Bruin,  12  East  400,  where  a  person  became 
surety  by  bond  for  the  faithful  services  of  another  to  the  Globe 
Insurance  Company,  which  was  not  corporate  body,  and  all  other 
members  thereof,  the  Court  of  King's  Bench  held  that  it  sufficiently 
appeared  that  the  obligor  was  to  be  answerable  for  the  good  con- 
duct of  the  person  employed  to  the  individuals  who  constituted  the 
Globe  Insurance  Company  for  the  time  being.  This  being  the  state 
of  the  law,  came  the  Mercantile  Law  Amendment  Act,  1856,  the  ob- 
ject of  which  was  to  render  the  English  law  uniform  with  that  of 
Scotland,  which  was  made  uniform  with  it  by  Stat.  19  and  20  Vict.,  . 
ch.  60,  s.  7.  By  sect.  4  of  the  English  act,  no  promise  to  answer 
for  the  debt,  default,  or  miscarriage  of  a  firm  "shall  be  binding  on  . 
the  person  making  such  promise  in  respect  of  anything  done  or 
omitted  to  be  done  after  a  change  shall  have  taken  place  in  any  one 
or  more  of  the  persons  constituting  the  firm,  or  in  the  person  trad- 
ing under  the  name  of  the  firm,  unless  the  intention  of  the  parties, 
that  such  promise  shall  continue  to  be  binding  notwithstanding 
such  change,  shall  appear  either  by  express  stipulation  or  by  neces- 
sary implication  from  the  nature  of  the  firm  or  otherwise."  I  think 
that  enactment  does  not  alter  the  law  of  England ;  at  all  events  it 
follows  the  decisions  which  had  taken  place  on  it.  It  says  first,  a 
change  of  the  firm  shall  put  an  end  to  the  guarantee.  That  was  so 
decided  by  the  cases  cited  by  Mr.  Lush.  Then  comes  the  proviso, 
unless  the  intention  of  the  parties  that  the  guarantee  should  con- 
15— De  Witt. 


226  COMMERCIAL    GUARANTIES 

tinue  to  be  binding  appear  by  express  stipulation,  an  obviously  just 
and  proper  provision,  or  unless  it  appear  "by  necessary  implication 
from  the  nature  of  the  firm  or  otherwise."  This  last  provision 
means  no  more  than  that  in  such  a  case  as  Metcalf  v.  Bruin,  12 
East  400,  2  Campb.  422,  the  law  shall  be  the  same  as  it  was  before: 
if  the  intention  of  the  parties  necessarily  appears  as  it  did  in  Met- 
calf v.  Bruin,  that  intention  shall  guide. 

Then  comes  the  question  can  we  say  here  that,  by  necessary  im-\ 
plication  from  the  nature  of  the  firm  or  otherwise,  the  intention  of 
the  parties  appears  that  this  guarantee  was  to  continue  notwith-j 
standing  a  change  in  the  firm  ?  I  thinkjt  does  not.  So  long  as  the 
parties  were  only  liable  to  be  altered  by  death  there  would  be  no 
change  in  the  firm ;  but  if  they  took  in  new  partners  there  would. 
Now  at  the  time  this  guarantee  was  given  there  was  nothing  to  dis- 
tinguish the  shipbuilding  firm  from  any  other.  The  original  firm 
remained,  and  all  its  partners  could  take  in  fresh  ones.  If  the  par- 
ties to  a  guarantee  given  to  a  firm  mean  that  it  is  to  continue  in 
force  though  there  be  a  change  of  partners,  it  is  very  easy  to  express 
that.  But  there  is  nothing  of  the  sort  here.  It  appears  that  some 
years  afterward  the  defendant  wrote  a  letter  showing  that  he  was 
under  the  impression  that  the  guarantee  continued,  but  we  can  not 
alter  the  construction  of  a  written  instrument  on  that  account.  We 
must  construe  it,  and  see  from  its  terms  what  was  the  intention  of  I 
the  parties ;  and  I  see  nothing  to  show  that  here  was  to  be  a  con- 
tinuing guarantee  notwithstanding  a  change  in  the  firm.  Therefore., 
although  it  is  a  hard  case  on  the  plaintiffs,  our  judgment  must  be 
for  the  defendant. 

Judgment  for  the  defendant. 

Shee,  J.,,  concurring. 

Accord  in  holding  that  the  creditor's  ignorance  of  the  change  in  the  firm  does 
not  alter  the  rule.  Burch  v.  De  Rivera.  53  Hun  367.  6  N.  Y.  S.  206;  Stand- 
ard Oil  Co.  v.  Arnestad,  6  N.  Dak.  255,  69  N.  W.  197,  34  L.  R.  A.  861,  66  Am. 
St.  604. 


SECTION  4.    NEGOTIABILITY  AND  TRANSFER  OF 
GUARANTY 

THE  COMMERCIAL  BANK  ET  AL.  v.  THE  CHESHIRE,/ 
PROVIDENT  INSTITUTION 

59  Kans.  361,  53  Pac.  131,  41  L.  R.  A.  175,  68  Am.  St.  368  (1898). 

Allen,  J. :  The  defendant  in  error  obtained  judgment  against 
the  Commercial  bank  for  $2,685,  on  a  guaranty,  in  the  following 
form,  indorsed  on  a  negotiable  promissory  note  executed  by  Daniel 
Dart: 


NEGOTIABILITY   AND   TRANSFER  22/ 

"For   value   received,   the   Commercial   Bank   hereby   guarantees 

prompt  payment  of  the  interest  on  the  within  obligation  and  the 

payment   of   the   principal   at   maturity.      Witness   our   hands   this 

12th  day  of  May,  1886.  (c/-,        ~    „  _    ,  . 

Geo.    1 .  Cunersey,  Cashier ; 

"L.  U.  Humphrey,  President." 

The  note  was  made  payable  to  the  order  of  the  Topeka  Invest- 
ment &  Loan  Company,  and  was  by  it  indorsed  before  maturity  to 
the  Cheshire  Provident  Institution.  The  petition  alleges  that,  at 
the  time  the  note  and  mortgage  securing  the  same  were  executed, 
the  Commercial  Bank,  in  writing  and  for  a  valuable  consideration, 
executed  the  guaranty  above  copied.  The.  answer  of  the  Commer- 
cial Bank  alleges  that  it  as  a  corporation  never  had  any  interest  in 
the  note,  and  never  received  any  value  for  the  execution  of  the 
guaranty,  that  the  officers  of  the  bank  had  no  authority  to  execute 
the  guaranty,  and  that  these  facts  were  known  to  the  payee  of  the 
note  at  the  time  of  its  deliver}-.  To  this  answer  the  plaintiff  re- 
plied with  a  general  denial.  The  case  was  tried  to  the  court,  and  a 
general  finding  was  made  in  favor  of  the  plaintiff,  on  which  judg- 
ment was  entered  for  the  amount  of  the  note  and  interest.  Coun- 
sel for  plaintiff  in  error  claim,  first,  that  the  guaranty  on  which 
judgment  was  rendered  was  not  a  negotiable  guaranty,  because  pay- 
able generally  and  not  to  order  or  bearer ;  second,  that  the  indorse- 
ment of  the  note  did  not  assign  the  guaranty ;  third,  that,  if  it  be 
conceded  that  the  indorsement  of  the  note  operated  as  an  assign- 
ment of  it,  all  defenses  against  the  first  holder  are  available  against 
the  assignee ;  fourth,  that  the  guaranty  is  void  because  the  bank  had 
no  power  to  lend  its  credit  in  that  manner. 

The  first  point  presents  the  most  important  question  in  the  case, 
and  one  on  which  the  authorities  are  conflicting.  It  will  be  noticed  , 
that  the  guaranty  under  consideration  in  this  case  contains  no  words 
of  negotiability,  but  is  indorsed  on  a  negotiable  instrument.  In 
Daniel  on  Negotiable  Instruments,  the  conflicting  views  of  the 
courts  and  text  writers  are  summarized;  and,  in  §  1777,  the  author 
says: 

"On  the  other  hand,  there  are  cases  which  maintain  that,  although 
the  guaranty  on  the  paper,  written  at  the  time  of  delivery,  speci- 
fies no  person  to  whom  the  guarantor  undertakes  to  be  liable,  and  ; 
has  no  negotiable  words,  it  runs  with  the  instrument  to  which  it  re- 
fers, partakes  of  its  quality  of  negotiability,  and  any  person  having 
the  legal  interest  in  the  instrument  takes  in  like  manner  the  guar- 
anty as  an  incident,  and  may  sue  thereon.  And  it  has  been  said  in 
such  a  case,  'this  view  is  consistent  with  the  nature  of  the  trans- 
action, the  evident  intention  of  the  parties,  and  the  objects  and  uses 
of  commercial  paper.'  This  seems  to  us  the  better  doctrine.  By 
writing  the  guaranty  on  the  paper,  the  guarantor  evidences  his  in- 
tention to  guarantee  the  contract  of  the  maker.     That  contract  be- 


228  COMMERCIAL    GUARANTIES 

ing  negotiable,  is  made  with  any  and  every  person  who  may  be  the 
holder,  and  the  guarantor  is  thus  brought  in  privity  with  any  and 
every  person  who  becomes  the  holder." 

This  view  of  the  law  seems  to  us  supported  by  reason  and  the 
'weight  of  authority.  [A  guaranty  indorsed  on  a  negotiable  instru- 
ment is  to  be  construed  with  the  language  of  the  instrument~jThe 
one  under  consideration  in  terms  names  no  guarantee.  The  evident 
intent  was  to  guarantee  the  payment  to  the  legal  holder  of  the  note. 
We  are  unable  to  perceive  any  good  ground  for  the  position,  taken 
by  some  of  the  authorities,  that  the  guaranty  inures  to  the  benefit 
of  the  first  holder  of  the  paper,  only.  The  transfer  of  the  note  by 
indorsement  must  certainly  operate  as  at  least  an  assignment  of  the 
guaranty.  We  think  it  does  more,  and  that  the  guaranty  passes  by 
.the  indorsement  as  fully  as  the  note  itself.  The  Commercial  Bank 
by  its  guaranty  became  a  party  to  a  negotiabTe~^'sTrument.  It  em- 
ployed  no  words  limiting  its  liability,  and  it  must  make  good  the 
terms  of  its  promise  to  the  legal  holder  of  the  paper.  This  view  of 
the  law  is  sustained  by  the  following  authorities :  Story  on  Bills 
of  Exchange,  p.  458;  Webster  v.  Cobb,  17  111.  459;  Phelps  v.  Sar- 
gent, 71  N.  W.  927;  McLaren  v.  Watson's  Executors,  26  Wend. 
425 ;  Partridge  v.  Davis,  20  Vt.  499 ;  Jones  v.  Berryhill,  25  Iowa 
289;  Brandt  on  Suretyship  and  Guaranty,  p.  47. 

The  view  opposed  to  the  negotiability  of  a  guaranty,  unless  made 
negotiable  by  express  terms,  is  taken  by  Mr.  Randolph  in  his  work 
on  Commercial  Paper,  §  861,  and  the  authorities  sustaining  that 
view  are  cited  in  the  notes.  Much  stress  and  reliance  are  placed  on 
the  case  of  Briggs  v.  Latham  (36  Kans.  205,  13  Pac.  129).  In  that 
case  a  recovery  was  sought  on  a  guaranty  written  on  a  mortgage, 
securing  the  note.  It  was  a  guaranty  of  the  payment  of  the  mort- 
gage. The  mortgage  itself  was  not  a  negotiable  instrument,  and 
there  were  no  words  of  negotiability  in  the  guaranty.  We  are  en- 
tirely satisfied  with  the  decision  of  that  case.  The  dictum  contained 
in  the  opinion,  seemingly  opposed  to  the  conclusion  reached  in  this 
case,  being  entirely  outside  of  the  question  before  the  court,  is  not 
of  binding  authority.  That  the  guaranty  is  assignable  and  passes 
with  the  assignment  of  the  debt  guaranteed  does  not  admit  of  doubt. 
Reed  v.  Garvin,  12  S.  &  R.  100;  Claflin  v.  Ostrom,  54  N.  Y.  581; 
Harbord  v.  Cooper,  43  Minn.  466,  45  N.  W.  860;  Stillman  v.  Nor- 
thrup.  109  N.  Y.  473,  17  N.  E.  379. 

The  general  finding  in  favor  of  the  plaintiff  below  is  a  complete 
answer  to  all  questions  urged  on  our  consideration,  except  that  as 
to  the  negotiability  of  the  guaranty  and  the  effect  of  the  indorse- 
ment of  the  paper  as  an  assignment  of  it. 

The  judgment  is  affirmed. 

Accord:  Wooley  v.  Moore,  61  X.  J.  L.  16,  38  Atl.  758;  Craig  v.  Parkis,  40 
N.  Y.  181,  100  Am.  Dec.  469;  Lemmon  v.  Strong,  59  Conn.  448.  22  Atl.  293, 
12  L.  R.  A.  270,  21  Am.  St.  123 ;  Cole  v.  Merchants'  Bank,  60  Ind.  350. 


NEGOTIABILITY   AND    TRANSFER  229 

Contra  holding  that  a  guaranty  on  a  note  is  enforceable  only  by  the  party 
to  whom  it  was  given.  Springer  v.  Hutchinson,  19  Maine  359 ;  Irish  v.  Cut- 
ter, 31  Maine  536;  Smith  v.  Dickinson,  6  Humph.  (Tenn.)  261,  44  Am.  Dec. 
306. 

Although  the  guaranty  of  a  negotiable  instrument  may  be  enforced  by  the 
holder  of  the  instrument,  the  guaranty  is  not  negotiable  in  the  strict  sense, 
but  the  assignee  takes  it  subject  to  any  defense  existing  against  it.  Carter  v. 
Dubuque,  35  Iowa  416;  First  Nat.  Bank  v.  Carpenter,  41  Iowa  518;  Waldron 
v.  Harring,  28  Mich.  493 ;  Haj  den  v.  Weldon,  43  N.  J.  L.  128,  39  Am.  Rep. 
551. 

It  has  been  held  that  although  the  guaranty  may  be  enforced  by  the  holder, 
suit  must  be  brought  in  the  name  of  the  person  to  whom  the  guaranty  was 
made.  Edgerly  v.  Lawson,  176  Mass.  551,  57  N.  E.  1020,  51  L.  R.  A.  432; 
Northcumberland  County  Bank  v.  Eyer,  58  Pa.  St.  97. 


CHARLES  B.  EVERSON,  RESPONDENT,  v.   R.  NELSONS- 
GERE  ET  AL.,  APPELLANTS 

122  N.  Y.  290,  25  N.  E.  492  (1890). 

Haight,  J. :  This  action  was  brought  to  recover  the  amount  due 
upon  a  promissory  note  guaranteed  by  the  defendant. 
I  It  appeared  that  on  the  12th  day  of  February,  1884,  the  Syra- 
cuse Iron  Works  executed  its  promissory  note  for  $36,000,  payable 
to  the  order  of  Charles  E.  Hubbell,  treasurer,  twelve  months  after 
date,  with  interest  at  six  per  cent,  per  annum,  payable  semi-an- 
nually ;  that  the  note  was  indorsed  by  Charles  E.  Hubbell,  treas- 
urer, "pay  John  Crouse  &  Co.  or  order,"  and  delivered  to  them,  and— 
attached  thereto  was  the  following  guaranty  signed  by  the  defend- 
ants :  "For  value  received  of  John  Crouse  &  Co.,  we  do  hereby 
guarantee  to  said  John  Crouse  &  Co.  the  payment  of  the  note  hereto 
annexed,  made  by  the  Syracuse  Iron  Works,  for  $36,000.  Said 
note  being  dated  February  12,  1884,  payable  twelve  months  after 
date  at  the  Merchants'  National  Bank  of  Syracuse,  with  interest  at 
six  per  cent,  per  annum,  payable  semi-annually."  Subsequently, 
and  before  the  maturity  of  the  note,  John  Crouse  &  Co.  indorsed 
the  same  to  the  plaintiff  "without  recourse,"  and  at  the  same  time 
executed  and  delivered  an  assignment  thereof,  together  with  the 
written  guaranty  attached  thereto.  The  trial  court  granted  a  non- 
suit upon  the  following  grounds :  That  the  guaranty  sued  upon  is 
special,  personal  to  John  Crouse  &  Co.,  and  did  not  accrue  to  the 
benefit  of  the  plaintiff.  That  no  cause  of  action  had  accrued  upon 
the  guaranty  at  the  time  of  its  assignment,  and  that  no  cause  of 
action  thereon  was  or  could  be  assigned  to  the  plaintiff.  That  John 
Crouse  &  Co.  having  undertaken  to  assign  the  guaranty  before  the 
maturity  of  the  note,  the  plaintiff  acquired  no  right  thereunder  and 
caii.  not  maintain  the  action. 


230  COMMERCIAL    GUARANTIES 

The  later  propositions  are  involved  in  the  former,  so  that  but  one  \**\ 
question  requires  discussion,  and  that  is  whether  the  guaranty  sued 
upon  is  special  and  personal  to  John  Crouse  &  Co.,  or  is  to  be  re- 
garded as  a  general  guaranty  for  the  payment  of  the  note.  It  will 
be  observed  that  the  guaranty  was  executed  and  attached  to  the  note 
at  the  same  time  that  it  was  indorsed  and  delivered  to  John  Crouse 
&  Co.  By  the  general  rules  of  construction,  papers  thus  executed 
and  delivered  are  to  be  considered  together  as  one  instrument,  and 
the  intention  of  the  parties  determined  therefrom.  (McLaren  v. 
Watson,  26  Wend.  425;  Church  v.  Brown,  21  N.  Y.  315-319.) 
"  The  note  upon  which  the  guaranty  was  attached  was  negotiable, 
and  was  indorsed  payable  to  the  order  of  John  Crouse  &  Co.  By 
the  guaranty  the  defendant  undertook  to  pay  John  Crouse  &  Co. 
in  case  the  maker  did  not  pay  the  note  at  its  maturity.  It  was  trans- 
ferable from  person  to  person  by  indorsement.  No  trust  or  confi- 
dence was  imposed  in  John  Crouse  &  Co.,  and  it  consequently  ap- 
pears to  us  that  it  was  the  intention  of  the  parties  to  undertake  to 
pay  the  note  to  them,  or  to  the  person  or  persons  to  whom  they 
should  transfer  it.  (Stillman  v.  Northrup,  109  N.  Y.  473-481"; 
Craig  v.  Parkis,  40  id.  181 ;  Claflin  v.  Ostrom,  54  id.  581 ;  U.  Bank 
v.  Executors,  3  id.  203.) 

A  special  guaranty  is  limited  to  the  person  to  whom  it  is  ad- 
dressed, and  usually  contemplates  a  trust  or  reposes  a  confidence  in 
/such  person.     Such  a  guaranty  may  not  be  assignable  until  a  right 
of  action  has  arisen  thereon.    (E.  N.  Bank  v.  Kaufmann,  93  N.  Y. 
273.) 

In  that  case  the  defendants  had  written  Bingham  Brothers  to  the 
effect  that  any  draft  that  they  may  draw  on  A.  Feigelstock  of  their 
city  they  guaranteed  to  be  paid  at  maturity.  Here  was  trust  and  con- 
fidence reposed.  The  draft  or  drafts  were  to  be  drawn  in  the  future, 
and  as  contemplated  by  the  parties  in  the  natural  course  of  their 
business  transactions.  But  in  the  case  at  bar  1  theguarantv  was  at- 
tached  to  a  promissory  note  previously  executed  and  delivered.  Its 
amount  and  time  of  payment  was  fixed.  The  defendants  undertook 
<  to  pay  if  the  maker  did  not,  and  it  could  make  no  difference  to  them 
whether  they  paid  to  John  Crouse  &  Co.,  or  to  some  other  person 
to  whom  they  had  transferred  their  claim. 

We  consequently  are  of  the  opinion  that  the  order  of  the  General 
Term  should  be  affirmed  and  judgment  absolute  ordered  for  the 
plaintiff  upon   the   stipulation. 

All  concur  except  Follett,  Ch.  J.,  not  sitting. 

Order  affirmed  and  judgment  accordingly. 


NEGOTIABILITY    AND   TRANSFER  231 


\A4 

ANCHOR  INVESTMENT  COMPANY  v.  F.  S.  KIRKPAT- 

RICK   ET   AL. 

59  Minn.  378,  61  X.  W.  29,  50  Am.  St.  417  (1894). 

The  defendants,  F.  S.  Kirkpatrick,  Egbert  G.  Handy  and  Joseph 
A.  Humpreys,  on  September  21,  1891,  executed  and  delivered  to 
the TZornmercial  Bank  of  St.  Paul  their  guaranty  that  the  Columbia 
Electric  Company,  a  domestic  corporation,  would  pay  the  bank  any 
and  all  indebtedness  it  might  then  or  thereafter  owe  the  bank,  ana 
therein  stated  that  the  guaranty  is  an  open  and  continuing  one  to 
remain  in  force  until  revoked  in  writing.  Between  April  9  and 
April  23,  1892,  the  bank  loaned  to  the  Columbia  Electric  Company 
$11,000  and  took  its  four  several  notes  each  for  a  part  thereof  and 
each  due  fifteen  days  after  its  date.  The  notes  were  not  paid  and  c, 
on  February  27,  1893,  the  bank  sold  and  assigned  the  notes  to  the 
plaintiff  and  transferred  to  it  all  rights  under  the  guaranty.  Plain- 
tiff brought  this  action  upon  the  guaranty,  alleged  the  loan,  its  non- 
payment and  the  assignment,  and  prayed  judgment  for  $10,000. 
Kirkpatrick  alone  answered.  The  issues  were  tried  October  4,  1894, 
before  the  court,  without  a  jury.  The  facts  above  stated  were 
shown  in  evidence  and  plaintiff  rested.  Defendant  Kirkpatrick 
moved  that  the  action  be  dismissed  on  the  ground  that  the  right  of 
the  bank  under  the  guaranty  is  not  assignable.  The  court  granted 
the  motion.  Plaintiff  excepted,  moved  for  a  new  trial  and  being 
denied,  appeals. 

Burk,  J. :  In  the  month  of  April,  1892,  the  Columbia  Electric 
Company  executed  and  delivered  tc  the  Commercial  Bank  of  St. 
Paul  its  four  promissory  notes,  amounting  to  the  sum  of  $11,000 
and  interest,  each  note  payable  fifteen  days  after  its  date.  At  the 
time  said  notes  were  given,  the  bank  held  a  continuing  guaranty  in 
writing,  signed  by  the  defendants,  whereby  they  guaranteed  uncon- 
ditionally and  at  all  times  the  payment  to  said  Commercial  Bank  of 
St.  Paul  of  any  and  all  indebtedness  or  liability  now  or  hereafter 
owing  to  said  bank  by  the  Columbia  Electric  Company,  not  to  ex- 
ceed the  sum  of  $10,000,  and  waive  any  and  all  demands  of  payment 
and  notice  of  protest  or  default. 
'  On  the  28th  day  of  February,  1893,  and  after  the  maturity  of 
these  notes,  the  Commercial  Bank  of  St.  Paul  assigned  them  in 
writing  to  this  plaintiff,  and  the  assignment,  after  describing  the 
notes,  contained  these  words  :  "Together  with  all  securities  which 
said  bank  may  hold,  securing  any  property  or  indebtedness." 

The  plaintiff  brought  this-  action  against  the  defendants  as  guar- 
antors of  the  payment  of  said  notes.  The  defendants  interposed 
an  answer  consisting  of  a  general  denial.    There  was  no  controversy 


232  COMMERCIAL    GUARANTIES 

as  to  the  making  and  delivery  of  the  notes,  and  on  the  trial  it  was 
admitted  that  they  represented  an  indebtedness  owing  from  the  Co- 
lumbia Electric  Company  to  the  Commercial  Bank  which  had^  not 
been  paid,  and  that  the  notes  had  been  assigned  to  the  plaintiff. 

The  only  question  raised  upon  the  trial,  as  appears  from  the  evi- 
dence, was  as  to  the  assignability  of  the  guaranty.  This  question 
was  raised  when  the  plaintiff  offered  the  guaranty  in  evidence,  to 
which  the  defendant  objected  upon  the  ground  that  it  was  imma- , 
terial,  irrelevant,  incompetent,  and  by  its  terms  is  a  personal  agree- 
ment, and  is  not  assignable  or  negotiable,  which  objection  was  sus- 
tained by  the  court,  and  the  plaintiff  duly  excepted.  On  the  trial 
it  was  admitted  that  plaintiff  was  the  holder  of  the  notes,  and  that 
they  had  been  assigned  to  it.  On  motion  of  the  defendant,  judg- 
ment was  ordered  by  the  court  against  the  plaintiff.  By  the  terms 
of  the  written  guaranty  it  was  to  remain  in  full  force  until  revoked 
in  writing.  It  was  dated  September  21,  1891.  and  expressed  upon 
its  face  that  it  was  given  for  a  valuable  consideration. 
I  There  can  be  no  question  but  that  the  Commercial  Bank  could 
have  brought  suit  directly  in  its  own  name  upon  this  guaranty,  as 
it  was  expressly  given  to  secure  to  the  bank  any  and  all  indebted- 
ness or  liability  which  then  existed,  or  which  should  thereafter 
exist,  on  the  part  of  the  Columbia  Electric  Company  to  the  bank, 
in  whatever  manner  any  such  indebtedness  or  liability  may  have 
been,  or  might  thereafter  be,  created.  Here  was  a  legal  liability 
on  the  part  of  the  guarantors  which  attached  to  any  indebtedness 
which  the  Columbia  Electric  Company  owed  the  bank.  It  did  owe 
the  bank  the  indebtedness  represented  by  these  notes.  There  was  a 
legal  contract  between  the  guarantors  and  the  bank  to  pay  a  certain 
indebtedness  held  by  the  bank,  to  wit,  these  notes.  There  can  be  no 
question  but  that  the  notes  could  be  transferred  or  assigned.  But 
they  represented  the  same  indebtedness  in  the  hands  of  the  bank 
that  the  guaranty  did,  and  which  it  also  held.  Why  should  they 
not  be  assignable  together,  in  and  as  one  transaction,  and  as  a 
proper,  legitimate  mode  of   doing  business? 

The  terms  of  the  guaranty  were  unusually  broad.  The  terms  of 
the  assignment  were  broad  enough  to  include  an  assignment  of  this 
guarantv  ;Und,  unless  forbidden  by  some  rigid  rules  of  law,  the 
notes  and  the  guaranty  of  their  payment  should  pass  together.  The 
guaranty  was  executed  for  the  benefit  of  the  bank.  That  is  too  ap- 
parent to  need  discussion.  It,  however,  guaranteed  the  payment  to 
the  bank  of  the  indebtedness  of  only  one  party,  viz.,  the  Columbia 
Electric  Company.  If  the  guarantors  had  paid  these  notes  of  $10,- 
000  to  the  bank,  they  would  have  done  just  what  they  had  agreed 
to  do  by  the  terms  of  their  guaranty.  If  they  paid  the  same  amount 
to  this  plaintiff  as  the  assignee  of  the  -notes  and  guaranty,  they  are 
in  no  way  harmed  or  damaged.     The  change  is  as  to  the  plaintiffs 


NEGOTIABILITY    AND    TRANSFER  233 

or  parties  in  interest,  not  as  to  any  greater  or  less  liability  upon 

the  part  of  the  guarantors.     There  are  no  restrictive  terms  in  the 

guaranty  as  to  its  assignability ;  that  is,  there  are  no  terms  which 

make  it  a  special  guaranty,  applicable  only  to  the  party  to  whom  it 

was  given,  to  wit.  the  Commercial  Bank.     But,  even  in  cases  of  or- 

-  . :....u 


dinary  special  guaranty,  the  guaranty  is  assignable  after  default, 
anqljjvHen  a  cause  of  action  has  arisen  thereon.  Evansville  Nat! 
BankvTKauimann,  V3  JN.   Y.  Z73. 

Now,  the  Commercial  Bank  paid  a  valuable  consideration  for 
the  benefit  of  this  guaranty.  It  is  so  expressed  in  the  instrument.  / 
Why  should  it  not  have  the  full  benefit  of  what  it  paid  for  ?  The  . 
right  of  assignment  was  a  valuable  right  to  the  bank.  Its  contract 
with  the  defendants  should  be  construed  as  other  contracts  are  con- 
strued ;  that  is,  to  carry  out  the  intention  of  the  parties.  Constru- 
ing it  as  it  appears  upon  its  face,  it  was  the  intention  of  the  parties 
that  just  such  an  indebtedness  as  this,  owing  the  bank  by  the  Co- 
lumbia  Electric  Company,  should  be  paid.  [That  obligation  can  be, 
discharged  by  paying  it  to  this  plaintiff  as  weiTas  to  the  bank.  The 
gist  of  the  obligation  is  payment  of  one  or  more  debts.  The  party 
to  whom  it  is  under  obligation  to  pay  is  immaterial,  providing  it 
was  a  fair  business  transaction  between  the  bank  and  the  Columbia 
Electric  Company,  and  came  within  the  terms  of  the  guaranty.  The 
guaranty  should  therefore  go  wTith  the  debt  it  secures.  The  plaintiff 
is  the  owner  of  the  notes,  and  is  the  real  party  in  interest.  This 
guaranty  is  a  chose  in  action,  and  the  party  for  whose  benefit  it 
was  made  should  have  the  right  to  make  it  as  effectual  and  benefi- 
cial as  possible. 

In  the  case  of  Thallhimer  v.  Brickerhoff,  3  Cow.  645,  the  chan- 
cellor, in  giving  his  decision  upon  the  general  principles  applicable 
to  the  transfer  of  causes  of  action,  uses  this  very  sensible  language : 
"But  the  rule  of  the  common  law  that  rights  of  action  can  not  be 
assigned  has  in  modern  times  been  reversed ;  the  apprehension  that 
justice  would  be  trodden  down  if  property  in  action  should  be  trans- 
ferred is  no  longer  entertained ;  and  the  ancient  rule  now  serves  only 
to  give  form  to  some  legal  proceedings.  In  courts  of  equity  this 
rule  was  never  folloAved,  and  those  courts  have  always  considered 
and  treated  the  rule  as  unjust,  and  have  supported  assignments  of 
rights  of  action.  Experience  has  fully  shown,  not  only  that  no  evil 
results  from  the  assignment  of  rights  of  action,  but  that/the  public/ 
good  is  greatly  promoted  by  the  free  commerce  and  circulation  of  V 
property  in  actions,  as  well  as  of  property  in  possession." 

In  a  general  sense,  this  language  is  applicable  to  this  case,  and 
confirmatory  of  the  views  which  we  have  endeavored  to  express. 
We  are  of  the  opinion  that /the  instrument  of  guaranty  was  assign- 
able, and  that  by  such  assignment  the  plaintiff  became  the  true 
owner  thereof,  and  that  it  was  entitled  to  bring  this  action  for  its 


234  COMMERCIAL    GUARANTIES 

use  and  benefit.    See  Schlieman  v.  Bowlin,  36  Minn.  198  (30  N.  W. 
879). 

The  order  denying  the  motion  for  a  new  trial  is  reversed. 

Accord :   Weir  v.  Anthony,  35  Nebr.  596,  53  N.  W.  206. 


THE  TIDIOUTE  SAVINGS  BANK,  RESPONDENT,  v. 
LIBBEY  AND  OTHERS,  APPELLANTS 

101  Wis.  193,  77  N.  W.  182,  70  Am.  St.  907  (1898). 


In  the  month  of  February,  1895,  and  for  a  long  time  prior  thereto, 
the  firm  of  W.  T.  Rickards  &  Co.  was  engaged  in  the  business  of 
banking,  and  the  purchase  and  sale  of  commercial  paper  and  securi- 
ties, at  Chicago,  111.  On  February  25,  1895,  the  defendants  executed 
and  delivered  to  said  firm  a  written  guaranty  of  the  following  tenor : 
^"For  and  in  consideration  of  the  sum  of  one  dollar  to  each  of  us  in 
hand  paid,  and  in  consideration  of  the  granting  of  credit  and  dis- 
count by  W.  T.  Rickards  &  Co.,  of  Chicago,  III,  to  the  Farson  & 
Libbey  Company,  a  corporation  of  Chicago,  111.,  we,  for  ourselves, 
and  for  our  heirs,  executors,  administrators  and  assigns,  do.  hereby 
jointly  and  severally  guaranty  to  said  W.  T.  Rickards  &  Co.,  their 
heirs,  executors,  administrators,  or  assigns,  the  payment  of  any  and 
all  indebtedness  now  due  or  hereafter  to  become  due,  to  said  \Y.  T. 
Rickards  &  Co.,  their  heirs,  executors,  administrators,  or  assigns, 
growing  out  of  or  occasioned  by  any  or  through  any  act  or  acts  of 
the  said  Farson  &  Libbey  Company. |  It  is  further  agreed  that  such 
guaVanty  shall  remain  in  full  force  and  effect  in  respect  to  all  indebt- 
edness or  renewals  thereof  now  existing  or  hereafter  to  accrue, 
growing  out  of  any  and  all  transactions  originating  prior  to  the 
time  a  notice  in  writing  of  the  cancellation  of  this  guaranty,  signed 
by  either  of  the  undersigned,  shall  be  received  by  said  W.  T.  Rick- 
ards &  Co.  It  is  provided,  however,  that  the  undersigned  shall  not 
be  liable  under  this  guaranty  for  an  amount  to  exceed  the  sum  of 
twenty  thousand  dollars  ($20,000).  The  undersigned  hereby  waive 
notice  of  the  acceptance  of  the  guaranty  and  of  the  amount  of  the 
indebtedness  existing  from  time  to  time  from  said  Farson  &  Libbey 
Company  to  said  W.  T.  Rickards  &  Co." 

This  guaranty  was  in  full  force  at  the  time  of  the  purchase  and 
discount  by  W.  T.  Rickards  &  Co.  of  the  notes  hereinafter  men- 
tioned. On  September  11,  1895,  the  City  Sash  &  Door  Company 
executed  and  delivered  to  the  Farson  &  Libbey  Company  its  prom- 
issory note  for  $885.11,  due  in  four  months.  On  October  7,  1895, 
under  and  pursuant  to  the  said  contract  of  guaranty,  the  Farson  & 
Libbey  Company  sold  and  indorsed  said  note  to  Rickards  &  Co.  for 


NEGOTIABILITY   AND   TRANSFER  235 

value,  and,  in  writing  on  the  back  thereof,  guaranteed  the  payment  , 
thereof  at  maturity,  or  at  any  time  thereafter,  with  interest  at  seven 
per  cent.  On  October  31,  1895,  Richards  &  Co.  sold  said  note  to  the 
Tidioute  Savings  Bank,  the  plaintiff  in  one  of  said  actions,  who  took 
it  without  notice  of  the  existence  of  the  written  guaranty  of  the  de- 
fendants to  Richards  &  Co.  The  note  was  presented  for  payment, 
duly  protested,  and  notice  given.  At  the  date  of  the  trial  there  was 
found  to  be  due  thereon  the  sum  of  $527.30,  for  which  judgment 
was  ordered  against  the  defendants,  and  from  which  judgment  this 
appeal  was  taken. 

The  facts  in  relation  to  the  case  of  the  First  National  Bank  of 
Escanaba  against  these  defendants  are  the  same,  except  that  it  is 
founded  upon  a  note  of  the  Suburban  Lumber  Company  to  the 
Farson  &  Libbey  Company,  dated  October  26,  1895,  for  $1,217.90, 
due  in  four  months.  This  note  was  purchased  by  Richards  &  Co. 
on  November  15,  1895,  and  sold  to  the  bank  November  18,  1895.  At 
the  time  of  the  sale  to  the  bank  it  had  notice  of  the  defendants' 
written  guaranty  mentioned,,  and  relied  upon  the  same  in  making  the 
purchase  of  said  note.  The  amount  found  due  thereon  at  the  trial 
was  $1,223.83,  for  which  judgment  was  ordered  for  the  bank. 

These  notes  were  sold  by  Richards  &  Co.  in  the  due  course  of 
business,  and  no  formal  assignment  of  the  defendants'  guaranty 
was  made  in  either  case.  These  actions  are  brought  by  the  holders 
of  each  of  said  notes  against  the  defendants,  as  makers  of  said 
written  guaranty.  The  defendants  have  appealed  from  the  judg- 
ments in  favor  of  the  plaintiffs,  and  the  sole  question  is  ^whether 
they  are  liable  on  said  guaranty  to  the  present  holders  of  said  notes.    ' 

Bardeen,  J. :  A  guaranty  is  defined  to  be  "a  separate,  independent 
contract,  by  which  the  guarantor  undertahes,  for  a  valuable  con- 
sideration, to  be  answerable  for  the  payment  of  some  particular 
debt,  or  future  debts,  or  the  performance  of  some  duty,  in  case  of 
the  failure  of  another  person  primarily  liable  to  pay  or  perform ;" 
and  it  is  said  that  such  guaranty  is  assignable,  with  the  obligation 
secured  thereby,  and  that  it  goes  with  the  principal  obligation,  and 
is  enforceable  by  the  same  persons  who  can  enforce  that.  Cole- 
brooke  Collateral  Securities,  p.  253  ;  Ellsworth  v.  Harmon.  101  111. 
274;  Claflin  v.  Ostrom,  54  N.  Y.  581  ;  Stillman  v.  Northrup,  109  N. 
Y.  475 ;  Everson  v.  Gere,  122  N.  Y.  290 ;  Lane  v.  Duchac,  73  Wis. 
655 ;  W.  W.  Kimball  Co.  v.  Mellon,  80  Wis.  143.  The  rule  is  that 
the^  transfer  of  a  note  carries  with  it  all  security  without  any  formal 
assignment  or  delivery,  or  even  mention  of  the  latter.  Carpenter  v. 
Longan,  \6  Wall.  271  ;  Croft  v.  Bunster,  9  Wis.  503.  A  general 
guaranty  is  one  open  for  acceptance  by  the  public  generally.  A 
speckaj_gujmmj^is^  to  whom  it  is  addressed, 

and  usually  contemplates  a  trust  or  reposes  a  confidence  in  such  per- 
son. Such  a  guaranty  may  not  be  assignable  until  the  right  of  action 
has_arisen  thereon.    Jex  v.   Straus,   122  N.  Y.  293,  distinguishing 


236  COMMERCIAL    GUARANTIES 

Evansville  Nat.  Bank  v.  Kaufmann,  93  N.  Y.  273.  The  main  con- 
tention of  the  defendants  in  the  present  case  is  that  the  guaranty 
upon  which  the  action  is  founded  is  special,  and  limited  to  W.  T. 
Richards  &  Co.,  and  was  not  available  to  the  plaintiffs,  their  as- 
signees. YYe  do  not  think  that  the  construction  of  the  guaranty  in 
question  can  be  thus  fairly  restricted.  We  think  that  the  guaranty, 
except  as  expressly  limited  by  its  terms,  was  a  general,  continuing 
one.  The  defendants  executed  the  contract  of  guaranty  "in  consid- 
eration of  the  sum  of  one  dollar  to  each  of  us  in  hand  paid,  and  in 
consideration  of  the  granting  of  credit  and  discount  by  W.  T.  Rich- 
ards &  Co.  to  the  Farson  &  Libbey  Company,"  in  which  the  defend- 
ants were  jointly  and  severally  interested  as  owners  of  all  or  of  a 
large  proportion  of  the  capital  stock  thereof,  and  in  whose  success 
they  were,  and  each  of  them  was,  particularly  and  financially  inter- 
ested. In  other  words,  they  gave  the  guaranty  to.  secure  the  indebt- 
edness on  which  the  action  is  founded,  for  the  benefit  and  advan- 
tage of  a  company  in  which  they  were  themselves  thus  interested. 
The  Farson  &  Libbey  Company  were  anxious  to  realize  on  the  notes 
in  suit ;  took  the  same  to  W.  T.  Richards  &  Co.,  and  negotiated, 
sold,  and  delivered  the  same  to  that  company ;  and  it  granted  to 
said  Farson  &  Libbey  Company  credit,  discounted  such  notes,  and 
paid  it  therefor  the  full  value  and  amount  thereof,  less  interest  and 
brokerage.  The  transfer  of  these  notes  to  the  plaintiffs  carried  with 
j  it,  by  operation  of  law,  all  securities  for  their  payment.  The  debt 
is  the  principal  thing,  and  the  securities  are  only  an  incident.  The 
transfer  of  the  former,  therefore,  carries  with  it  the  right  to  the 
securities,  and  amounts  to  an  equitable  assignment  of  them.  No! 
matter  what  the  form  of  the  security  is,  whether  a  real  estate  or 
chattel  mortgage,  or  a  pledge  of  collateral  notes,  bonds,  or  other!  ( 
personal  property,  the  purchaser  of  the  principal  takes  with  it  the\ 
right  to  resort  to  these  securities;  and  this  is  so,  although  the  as-' 
signment  or  transfer  does  not  mention  them.  The  reason  of  this" 
rule,  within  all  the  authorities,  seems  to  be  that  when  the  mortgagee 
transfers  the  debt,  without  assigning  the  mortgage  or  other  security, 
he  becomes  a  trustee,  and  holds  the  security  for  the  benefit  of  the 
owner  of  the  note,  and  the  latter  may  enforce  the  trust.  The  debtor 
is  in  no  wise  injured  by  such  rule.  He  has  agreed  that  the  security 
shall  stand  for  the  payment  of  the  debt,  and  it  is  of  no  consequence 
to  him  to  whom  it  is  paid.   He  has  to  pay  it  but  once. 

The  guaranty  is  to  pay  any  and  all  indebtedness  to  said  W.  T. 
Richards  &  Co.,  their  heirs,  executors,  administrators,  and  "assigns," 
incurred  by  Farson  &  Libbey  Company.  It  is  said  that  the  word 
"assigns"  means  substantially  nothing  in  this  connection ;  that  it  is 
a  mere  formal  phrase.  We  can  not  so  regard  it.  It  either  means 
that  the  defendants  were  to  guaranty  this  paper  in  the  hands  of 
any  assignee  of  Richards  &  Co.,  or  it  means  absolutely  nothing. 
Richard   &   Co.    were   bankers   and   brokers.     Their   business    was 


NEGOTIABILITY    AND    TRANSFER  237 

dealing  in  commercial  paper,  both  buying  and  selling  it,  all  of  which 
defendants  well  knew.  Their  purpose  in  giving  this  guaranty  was 
to  give  to  the  Farson  &  Libbey  Company  a  credit  of  $20,000  with 
these  brokers.  It  was  perfectly  natural,  therefore,  that  the  brokers 
desired  to  have  this  paper  protected,  not  only  in  their  hands,  but  in 
the  hands  of  their  customers.  We  conclude,  therefore,  that  this 
phrase  was  an  apt  one  to  express  the  real  intention  of  the  parties, 
and  that  it  means  precisely  what  it  says.  Richards  &  Go.  hold  the 
security  for  these  notes  in  trust,  and  the  purchasers  of  the  notes 
are  entitled  to  enforce  the  trust.  The  guaranty  was  given  for  the  • 
payment  of  these  notes,  among  others,  and,  within  the  rule  of  the 
authorities,  it  would  seem  that  the  purchasers  from  Richards  &  Co. 
have  the  right  to  resort  to  the  guaranty. 

The  fact  that  the  Tidioute  Savings  Bank  did  not  know  of  the 
existence  of  this  guaranty  at  the  time  it  purchased  the  City  Sash  &^ 
Door  Company  note  is  of  no  significance.  The  securities  pledged  for 
a  debt  follow  it,  in  equity,  no  matter  how  the  debt  be  modified  or 
intojwhose  hands  it  may  come.  Until  the  debt  is  paid,  the  pledge  ac- 
companies it,  and  remains  for  its  payment,  and  is  available  to  all 
who  may  acquire  title  thereto.  Colebrooke  Collateral  Securities, 
p.'v7z97'Stearns  v.  Bates,  46  Conn.  306.  The  guaranty  in  question 
was  given  to  secure  the  payment  of  any  and  all  indebtedness  due, 
or  thereafter  to  become  due,  to  Richards  &  Co.,  or  their  assigns, 
"growing  out  of  or  occasioned  by  any  or  through  any  act  or  acts  of 
the  said  Farson  &  Libbey  Company."  The  defendant  used  apt  words 
to  make  the  guaranty  impersonal,  so  far  as  the  holders  of  the  debts 
so  created  are  concerned.  They  executed  and  delivered  a  contract 
as  security  for  all  the  debts  created  by  the  Farson  &  Libbey  Com- 
pany to  Richards  &  Co.  within  the  amount  limited,  which  became 
an  incident  to  each  such  debt,  and  which  passed  to  the  bank  pro 
rata,  upon  its  purchase  of  the  note,  even  though  it  may  not  have 
known  of  its  existence  at  that  time.  ,  Keyes  v.  Wood,  21  Vt.  331  ; 
Evertson  v.  Booth,  19  Johns.  486.  To  require  the  defendants  to 
pay  these  notes  is  but  to  require  them  to  fulfil  their  promise.  It  en- 
tails no  hardship  and  creates  no  obligation  beyond  the  plain  tenor  of 
their  contract. 

The  argument  that  the  guaranty  was  personal  with  Richards  & 
Co.,  as  imposing  special  trust  and  confidence  in  the  members  of  that 
firm,  falls  of  its  own  weight.  A  bare  reference  to  the  paper  itself 
would  seem  to  dispel  any  such  illusion.  The  case  of  Evansvilla  Nat. 
Bank  v.  Kaufmann,  93  N.  Y.  274,  falls  far  short  of  sustaining  their 
contention. 

On  the  whole  case,  the  conclusion  of  the  trial  court  meets  with 
our  entire  approval. 

By  the  court.  The  judgment  of  the  circuit  court  in  both  cases  is 
affirmed. 


L  ■ 


238  COMMERCIAL    GUARANTIES 


SECTION  5.   NOTICE  OF  ACCEPTANCE  OF  GUARANTY 

RUSSELL  v.  CLARK/ 


7  Cranch  (U.  S.)  69  (1812). 
(See  ante,  page  138.) 


•   SAMUEL  B.  LEE,  PLAINTIFFJN  ERROR,  v.  NATHANIEL 

"TJTCKETALT^ 

10  Pet.  (U.  S.)  482,  9  L.  ed.  503  (1836). 

On  the  24th  of  September,  1832,  Samuel  B.  Lee,  the  plaintiff  in 
'   error,  of  Memphis,  Tenn.,  addressed  to  N.  &  J.  Dick  &  Co.,  at  New 
Orleans,  a  letter  in  the  following  terms : 

"Gentlemen — Nightingale  &  Dexter,  of  Maury  County,  Ten- 
nessee, wish  to  draw  on  you  at  six  and  eight  months ;  you  will  please 
accept  their  draft  for  2,000  dollars,  and  I  do  hereby  guarantee  the 
punctual  payment  of  it. 

"Samuel  B.  Lee." 

On  the  same  paper  containing  this  guaranty,  and  on  the  same  day, 
Mr.  Lee  wrote  a  letter  to  Dexter,  in  which  he  says,  "I  have  no  ob- 
jection to  guaranty  your  bill,  except  it  .might  effect  my  own  opera- 
tions. I  however  send  guarantee  for  2,000  dollars,  which  you  can 
use  if  you  choose.  The  balance,  I  have  no  doubt,  your  friend  Mr. 
Watson  will  do  for  you.  I  would  cheerfully  do  the  whole  amount, 
but  expect  to  do  business  with  that  house  and  do  not  wish  to  be 
cramped  in  my  own  operations." 

_  On  the  5th  day  of  October,  1832,  Nightingale  &  Dexter,  at  Nash- 
ville, having  forwarded  the  letter  of  guaranty  given  by  the  plaintiff 
in  error,  drew  a  bill  of  exchange  for  $4,250  on  N.  &  J.  Dick,  at  New 
( Means,  payable  six  months  after  date ;  which  bill  was  accepted  on 
the  faith  of  the  guaranty,  and  they  paid  the  same,  and  gave  notice 
to  Mr.  Lee  that  they  looked  to  him  for  the  money. 

The  defendants  in  error  not  having  been  repaid  the  amount  of  the 
bill  by  the  drawers,  instituted  an  action  against  Samuel  B.  Lee,  on 
his  guaranty;  and.  in  September,  1835,  the  cause  was  tried,  and  a 
verdict  and  judgment  were  rendered  in  favor  of  the  plaintiffs. 

During  the  progress  of  the  trial  of  the  cause,  the  following  bill 
of  exceptions  was  tendered,  and  was  sealed  by  the  court : 

The  court  charged  the  jury  that  if  the  defendant  intended  to 
guaranty  a  bill  of  exchange,  to  be  drawn  for  $2,000,  he  would  not 
be  liable  upon  a  bill  drawn  for  upward  of  $4,000;  but  if  he  in- 
tended to  guaranty  $2,000  of  a  bill  to  be  drawn  for  a  larger 
amount,  that  then  he  would  be  liable  for  the  $2,000.   That  the  court 


NOTICE    OF    ACCEPTANCE 


239 


was  of  opinion  the  letter  accompanying  the  guaranty  was  admissible 
in  evidence  to  explain  whether  the  guarantor  meant  to  guaranty  a 
bill  for  $2,000  or  only  $2,C00  in  a  bill  for  a  larger  amount ;  and  it 
was  the  opinion  of  the  court  that  the  true  construction  of  the  guar- 
anty was  that  he  intended  to  guaranty  the  payment  of  $2,000  in  a 
bill  to  be  drawn  for  a  larger  amount.  The  court  also  charged  the 
jury  that  no  notice  by  N.  &  J.  Dick  &  Co.  to  the  defendant  that  they 
intended  to  accept  or  had  accepted  and  acted  upon  this  guaranty  was 
necessary. 

The  defendant  prosecuted  this  writ  of  error. 

Mr.  Justice  Thompson  delivered  the  opinion  of  the  court. 

This  case  comes  up  on  a  writ  of  error  from  the  circuit  court  oi 
the  United  States  for  West  Tennessee.  It  was  a  special  action  on 
the  case,  on  a  guaranty  given  by  the  plaintiff  in  error  in  favor  of 
Nightingale  &  Dexter.  The  declaration  is  special,  stating  that  the 
defendant  in  the  court  below,  by  his  guaranty  bearing  date  the  24th 
of  September  in  the  year  1832,  directed  and  addressed  to  the  plain- 
tiffs below,  requested  them  to  accept  the  draft  of  Nightingale  & 
Dexter  for  the  amount  of  $2,000,  and  thereby  promised  to  guaranty 
the  punctual  payment  of  the  same  to  that  amount ;  and  avers  that 
Nightingale  &  Dexter  afterward,  on  the  5th  of  October,  1832,  drew 
a  bill  on  the  plaintiffs  below  for  $4,250 ;  and  that,  confiding  in  the 
promise  of  the  defendant,  they  accepted  the  same,  etc.  The  declara- 
tion by  the  defendant  to  guaranty  the  payment  of  $2,000,  part  of  the 
$4,250,  with  the  necessary  averments  to  charge  the  defendant  with 
the  payment  of  the  $2,000. 

The  defendant  pleaded  the  general  issue ;  and  upon  the  trial  of 
the  cause,  the  plaintiff  produced  the  following  evidence : 

"Memphis,  September  24th,  1832. 
"Messrs.  N.  &  J.  Dick  &  Co. : 

"Gentlemen — Nightingale  &  Dexter,  of  Maury  County,  Ten- 
nessee, wish  to  draw  on  you  at  six*  or  eight  months'  date.  You  will 
please  accept  their  draft  for  2,000  dollars,  and  I  do  hereby  guaranty 
the  punctual  payment  of  it.  Very  respectfully  your  obedient  servant 

"Samuel  B.  Lee." 

"Nashville,  October  5th,  1832. 
"Exchange  for  $4,250.00. 

"Six  months  after  date  of  this  first  of  exchange  (second  unpaid), 
pay  to  H.  R.  Hill,  or  order,  4,250  dollars  —  cents  value  received,  - 
and  charge  the  same  to  account  of  yours,  etc. 

"Nightingale  &  Dexter." 

"To  N.  &  J.  Dick  &  Co.,  New  Orleans." 

The  plaintiff  also  offered  in  evidence  the  following  letter  of  the 
defendant.  Samuel  B.  Lee;  which  letter  was  written  upon  the  s,ame 
sheet  of  paper  with  the  guaranty,  but  on  different  parts  of  it. 


240  COMMERCIAL    GUARANTIES 

"Memphis,  September  24th,  1832. 
"Mr.  P.  B.  Dexter: 

"Dear  Sir — Yours  of  the  15th  inst.  came  to  hand  in  due  time.  I 
was  absent,  or  should  have  answered  it  sooner.  I  left  Mount  Pleas- 
ant sooner  than  I  expected  when  I  saw  you  last.  I  learned  that  my 
presence  was  wanted  at  Savannah,  and  put  o  p  h.  I  had  calculated 
to  get  along  with  business  without  having  anything  to  do  with  draw- 
ing bills  or  with  the  bank ;  but  there  is  no  cash  in  this  quarter,  and 
our  bills  at  the  east  are  falling  due,  and  I  have  no  other  alternative 
but  to  draw  for  what  funds  I  am  compelled  to  have,  and  may,  dur- 
ing the  winter  (should  I  go  largely  into  the  cotton  market),  wish 
to  draw  for  a  considerable  amount.  I  have  no  objections  to  guaranty 
your  bill,  except  it  might  affect  my  own  operations.  I,  however,  send 
a  guaranty  for  2,000  dollars,  which  you  can  use  if  you  choose.  The 
balance,  I  have  no  doubt,  your  friend  Mr.  Watson  will  do  for  you. 
I  would  cheerfully  do  the  whole  amount,  but  expect  to  do  business 
with  that  house,  and  do  not  wish  to  be  cramped  in  my  own  opera- 
tions. Spun  thread,  also  coarse  homespun  are  in  good  demand.  My 
compliments  to  Mrs.  and  Miss  Nightingale.   Your  friend, 

"Samuel  B.  Lee." 

It  was  agreed  by  the  counsel  that  the  bill  of  exchange  and  letter 
should  go  to  the  jury,  and  their  effect,  etc.,  be  charged  upon  by  the 
court.  The  plaintiff  proved  that  N.  &  J.  Dick  &  Co.  accepted  the 
above  bill,  upon  the  faith  of  the  said  guaranty,  and  that  they  had 
paid  it,  and  gave  notice  to  the  defendant  that  they  looked  to  him  for 
the  money.  The  court  charged  the  jury  that  if  the  defendant  intended 
to  guaranty  a  bill  of  exchange  to  be  drawn  for  $2,000,  he  would  not 
be  liable  for  a  bill  drawn  for  upward  of  $4,000.  But  if  he  intended 
to  guaranty  $2,000  of  a  bill  to  be  drawn  for  a  larger  amount,  then 
he  would  be  liable  for  the  $2,000.  That  the  court  was  of  opinion 
that  the  letter  accompanying  the  guaranty  was  admissible  in  evidence 
to  explain  whether  the  guarantor  meant  to  guaranty  a  bill  for  $2,000, 
or  only  $2,000  in  a  bill  for  a  larger  amount.  The  court  also  charged 
the  jury  that  no  notice  by  N.  &  J.  Dick  &  Co.  to  the  defendant,  that 
they  intended  to  accept,  or  had  accepted  and  acted  upon  this  guar- 
anty was  necessary.  To  which  opinion  of  the  court  the  defendant 
excepted. 

The  questions  arising  upon  this  case  are : 

1st.  Whether  this  evidence  will  warrant  the  conclusion  that  the 
defendant  intended  to  guaranty  $2,000  in  a  bill  to  be  drawn  for  a 
larger  sum. 

2nd.  Whether  N.  &  J.  Dick  &  Co.  were  bound  to  give  notice  to 
the  defendant  that  they  intended  to  accept,  or  had  accepted  and  acted 
upon  the  guaranty. 


NOTICE    OF    ACCEPTANCE  241 

The  next  question  is,  whetherthe  plaintiffs,  were  liound- to -give 
notice_tp_tne  defendant  that  they  intended  to  accept,  or  had  accepted 
and  acted  upon  this  guaranty.  It  is  to  be  observed  that  this  guar- 
anty was  prospective;  it  looked  to  a  draft  thereafter  to  be  drawn, 
and  this  question  is  put  at  rest  by  the  decisions  of  this  court.  The 
case  of  Russell  v.  Clark's  Executors  (7  Cranch  91)  was  a  bill  in 
chancery  to  recover  a  sum  of  money  upon  a  guaranty  alleged  to  grow 
out  of  several  letters  written  by  Clark  &  Nightingale  to  Russell.  The 
court  say :  "We  can  not  consider  these  letters  as  constituting  a  con- 
tract by  which  Clark  &  Nightingale  undertook  to  render  themselves 
liable  for  the  engagements  of  Robert  Murray  &  Co.  to  Nathaniel 
Russell.  Had  it  been  such  a  contract,  it  would  certainly  have  been 
the  duty  of  the  plaintiff  to  have  given  immediate  notice  to  the  de- 
fendant, of  the  extent  of  his  engagements."  Although  the  point 
now  in  question  was  not  precisely  the  one  before  the  court  in  that 
case,  as  there  was  no  contract  of  guaranty  made  out,  yet  it  is  laid 
down  as  a  settled  and  undisputed  rule.  The  case  of  Edmondston  v. 
Drake  &  Mitchell  (5  Peters  624)  was  an  action  founded  on  a  letter 
of  credit,  given  by  Edmondston  to  Castello  &  Black,  as  follows : 
"Gentlemen :  The  present  is  intended  as  a  letter  of  credit  in  favor 
of  my  regarded  friends,  Messrs.  J.  &  T.  Robinson,  to  the  amount  of 
40  or  50,000  dollars ;  which  sum  they  may  wish  to  invest  through 
you  in  the  purchase  of  your  produce.  Whatever  engagements  these 
gentlemen  may  enter  into,  will  be  punctually  attended  to." 

On  the  trial,  the  court  was  requested  to  instruct  the  jury  that  in 
order  to  make  the  defendant  liable  to  the  plaintiff  under  the  con- 
tractLthey  were  bound  by  the  law  merchant  to  give  him  due  notice. 
Upon  this  prayer  the  court  was  divided,  and  the  instruction  was  not 
given,  and  this  court  decided  that  the  instruction  ought  to  have  been 
given.  The  court  said  it  would  indeed  be  an  extraordinary  departure 
from  that  exactness  and  precision  which  peculiarly  distinguish  com-  C. 
mercial  transactions,  which  is  an  important  principle  in  the  law  and 
usages  of  merchants,  if  a  merchant  should  act  on  a  letter  of  this 
character,  and  hold  the  writer  responsible  without  giving  notice  to 
him  that  he  had  acted  on  it.  The  authorities  on  this  point,  say  the 
court,  unquestionably  establish  this  principle.  And  again,  the  case 
of  Douglass  et  al.  v.  Reynolds  et  al.  (7  Peters  125)  was  an  action 
upon  a  guaranty;  and  the  court  was  requested  to  instruct  the  jury 
that  to  enable  the  plaintiff  to  recover  on  the  letter  of  guaranty  they 
must  prove  that  notice  had  been  given,  in  a  seasonable  time  after 
said  letter  of  guaranty  had  been  accepted  by  them,  to  the  defendant, 
that  the  same  had  been  accepted.  This  instruction  the  court  below 
refused  to  give ;  and  this  court  say  the  instruction  asked  was  cocr_T 
rect,  and  ought  to  have  been  given.  That  .a  party  giving  a  letter  of 
guaranty  has  a  right  to  know  whether  it  is  accepted;  and  whether 
the  person  to  whom  it  is  addressed  means  to  give  credit  on  the  foot- 
16 — De  Witt. 


242*  COMMERCIAL    GUARANTIES 

ing  of  it  or  not.  It  may  be  most  material,  not  only  as  to  his  respon- 
sibility, but  as  to  future  rights  and  proceedings.  It  may  regulate  in 
a  great  measure  his  course  of  conduct,  and  his  exercise  of  vigilance 
in  regard  to  the  party  in  whose  favor  it  is  given.  Especially  it  is 
important  in  case  of  a  continuing  guaranty,  since  it  may  guide  his 
judgment  in  recalling  or  suspending  it.  f  This  last  remark  by  no 
means  warrants  the  conclusion  that  notice  is  not  necessary  in  a  guar- 
anty of  a  single  transaction ;  but  only  that  the  reason  of  the  rule  ap- 
plies more  forcibly  to  a  continuing  guaranty.  It  is  unnecessary,  after 
such  clear  and  decided  authorities  in  this  court  on  this  point,  to  for- 
tify it  by  additional  adjudications.  We  are  not  aware  of  any  conflict 
of  decisions  on  this  point ;  and  if  there  are,  we  see  no  reason  for 
departing  from  a  doctrine  so  long  and  so  fully  settled  in  this  court. 

We  do  not  mean  to  lay  down  any  rule  with  respect  to  the  time 
within  which  such  notice  must  be  given.  The  same  strictness  of 
proof  is  not  necessary  to  charge  a  party  upon  his  guaranty  as  would 
be  necessary  to  support  an  action  upon  the  bill  itself,  when  by  the 
law  merchant  a  demand  upon,  and  refusal  by  the  acceptors  must  be 
proved  in  order  to  charge  any  other  party  upon  the  bill.  (8  East 
245.)  There  are  many  cases  where  the  guaranty  is  of  a  specific  ex- 
isting demand  by  a  promissory  note  or  other  evidence  of  a  debt; 
and  such  guaranty  is  given  upon  the  note  itself,  or  with  a  reference 
to  it  and  recognition  of  it ;  when  no  notice  would  be  necessary.  The 
guarantor,  in  such  cases,  knows  precisely  what  he  guaranties,  and 
the  extent  of  his  responsibility ;  and  any  further  notice  to  him  would 
be  useless.  (14  Johns.  Rep.  349;  20  Johns.  365.)  But /when  the 
guaranty  is  prospective,  and  to  attach  upon  future  transactions,  and"* 
the  guarantor  uninformed  whether  his  guaranty  has  been  accepted 
j  and  acted  upon  or  not  the  fitness  and  justice  of  the  rule  requiring 
notice  is  supported  by  considerations  that  are  unanswerable. 

We  are  accordingly  of  opinion  that  the  circuit  court  erred  in  de- 
ciding that  notice  was  not  necessary,  and  that  the  judgment  must  be 
reversed. 


ERWIN  DAVIS  ET  AL.,  PLAINTIFFS  IN  ERROR,  v.  S 
WELLS,  FARGO  &  CO. 

104  U.  S.  159,  26  L.  cd.  686  (1881). 

Mr.  Justice  Matthews  delivered  the  opinion  of  the  court. 

The  action  below  was  brought  by  Wells,  Fargo  &  Co.,  against  the 
plaintiffs  in  error,  upon  a  guaranty,  in  the  following  words : 

''For  and  in  consideration  of  one  dollar  to  us  in  hand  paid  by 
Wells,  Fargo  &  Co.  (the  receipt  of  which  is  hereby  acknowledged), 
we  hereby  guarantee  unto  them,  the  said  Wells,  Fargo  &  Co.,  un- 
conditionally at  all  times,  any  indebtedness  of  Gordon  &  Co.,  a  firm 
now  doing  business  at  Salt  Lake  City,  Territory  of  Utah,  to  the 


NOTICE    OF    ACCEPTANCE  243 

extent  of  and  not  exceeding  the  sum  of  ten  thousand  dollars 
($10,000.00)  for  any  overdrafts  now  made,  or  that  may  hereafter 
be  made,  at  the  bank  of  said  Wells,  Fargo  &  Co. 

"This  guaranty  to  be  an  open  one,  and  to  continue  one  at  all  times 
to  the  amount  of  ten  thousand  dollars,  until  revoked  by  us  in  writ- 
ing. 

"Dated  Salt  Lake  City,  11th  November,  1874. 
"In  witness  whereof  we  have  hereunto  set  our  hands  and  seals  the 
day  and  year  above  written. 
(Seal.) 

"Erwin  Davis, 
"J.  N.  H.  Patrick. 
"Witness :  J.  Gordon." 

The  answer  set  up  by  way  of  defense,  that  there  was  no  notice  to 
the  defendants  from  the  plaintiffs  of  their  acceptance  of  the  guar- 
anty, and  their  intention  to  act  under  it ;  and  no  notice,  after  the 
account  was  closed,  of  the  amount  due  thereon ;  and  no  notice  of 
the  demand  of  payment  upon  Gordon  &  Co.,  and  of  their  failure  to 
pay  within  a  reasonable  time  thereafter. 

But  there  was  no  allegation  that  by  reason  thereof  any  loss  or 
damage  had  accrued  to  the  defendants. 

On  the  trial  it  was  in  evidence  that  this  guaranty  was  executed 
by  the  defendants  below  and  delivered  to  Gordon  on  the  day  of  its 
date,  for  delivery  by  him  to  Wells,  Fargo  &  Co.,  which  took  place  ^ 
on  the  same  day ;  that  Gordon  &  Co.  were  then  indebted  to  the 
plaintiffs  below  for  a  balance  of  over  $9,000  on  their  bank  account; 
that  their  account  continued  to  be  overdrawn,  Wells,  Fargo  &  Co. 
permitting  it  on  the  faith  of  the  guaranty,  from  that  time  till  July 
31,  1875,  when  it  was  closed,  with  a  debit  balance  of  $6,200;  that 
the  account  was  stated  and  payment  demanded  at  that  time  of  Gor- 
don &  Co.,  who  failed  to  make  payment ;  tliaL-a-iormak notice  of  the 
amount  due  and  demand  of  payment  was  made  by  Wells,  Fargo  & 
Co.,  of_the  defendants  below,  on  May  26,  1876,  the  day  before  the 
action  was  brought.  There  was  no  evidence  of  any  other  notice  i 
having  been  given  in  reference  to  it;  either  that  Wells,  Fargo  &  Co. 
accepted  it  and  intended  to  rely  upon  it,  or  of  the  amount  of  the 
balance  due  at  or  after  the  account  was  closed ;  and  no  evidence 
was  offered  of  any  loss  or  damage  to  the  defendants  by  reason  • 
thereof,  or  in  consequence  of  the  delay  in  giving  the  final  notice  of 
Gordon  &  Co.'s  default. 

The  defendant's  counsel  requested  the  court,  among  others  not 
necessary  to  refer  to,  to  give  to  the  jury  the  following  instructions, 
numbered  first,  second,  third  and  fifth: 

1.  If  the  jury  believes  from  the  evidence  that  the  guaranty  sued 
upon  was  delivered  by  the  defendants  to  Joseph  Gordon,  and  not 
to  the  plaintiff,  but  was  afterward  delivered  to  the  latter  by  Joseph 


244  COMMERCIAL    GUARANTIES 

Gordon,  or  by  Gordon  &  Co.,  it  became  and  was  the  duty  of  Wells,  | 
Fargo  &  Co.  thereupon  to  notify  the  defendants  of  the  acceptance  J 
of  said  guaranty,  and  their  intention  to  make  advancements  on  the  J 
faith  of  it,  and,  if  they  neglected  or  failed  so  to  do,  the  defendants  i 
are  not  liable  on  the  guaranty,  and  your  verdict  must  be  for  the 
defendants. 

2.  If  Wells,  Fargo  &  Co.  made  any  advancements  to  Gordon  & 
Co.  on  overdrafts  on  the  faith  of  said  guaranty,  it  became  and  was 
the  duty  of  plaintiff  to  notify  the  defendants,  within  a  reasonable 
time  after  the  last  of  said  advancements  of  the  amount  advanced 
under  the  guaranty,  and  if  the  plaintiff  failed  or  neglected  so  to  do, 
it  can  not  recover  under  the  guaranty  and  your  verdict  must  be  for 
the  defendants. 

3.  What  is  a  reasonable  time  in  which  notice  should  be  given  is 
a  question  of  law  for  the  court.  Whether  notice  was  given  is  one 
of  fact  for  the  jury.  The  court,  therefore,  instructs  you  that  if  notice 
of  the  advancements  made  under  said  guaranty  was  not  given  until 
after  the  lapse  of  twelve  months  or  upward  from  the  time  the  last 
advancement  was  made  to  Gordon  &  Co.,  this  was  not,  in  contem- 
plation of  law,  a  reasonable  notice,  and  your  verdict,  if  you  so  find 
the  fact  to  be,  should  be  for  the  defendants. 

5.  Before  any  right  of  action  accrued  in  favor  of  plaintiff's  under 
said  guaranty,  it  was  incumbent  on  it  to  demand  payment  of  the 
principal  debtor,  Gordon  &  Co.,  and  on  their  refusal  to  pay,  to  notify 
the  defendants.  If  the  jury,  therefore,  find  that  no  such  demand  was 
made,  and  no  notice  given  to  the  defendants,  the  plaintiff  can  not 
recover  upon  the  guaranty. 

The  court  refused  to  give  each  of  these  instructions,  and  the  de- 
fendants excepted. 

The  following  instructions  were  given  by  the  court  to  the  jury,  to 
the  giving  of  each  of  which  the  defendants  excepted : 

1.  You  are  instructed  that  the  written  guaranty  offered  in  evi- 
dence in  this  case  is  an  unconditional  guaranty  by  defendants,  of  any 
and  all  overdrafts,  not  exceeding  in  amount  $10,000,  for  which  said 
Gordon  &  Co.  were  indebted  to  the  plaintiff  at  the  date  of  the  com- 
mencement of  this  suit.  If  the  jury  believes  from  the  evidence  that 
said  guaranty  was  by  said  defendants,  or  by  any  one  authorized  by 
them  to  deliver  the  same,  actually  delivered  and  acted  on  the  same, 
such  delivery,  acceptance  and  action  thereon  by  plaintiff  bind  the 
defendants,  and  render  the  defendants  responsible  in  the  action  for 
all  overdrafts  upon  plaintiff  made  by  Gordon  &  Co.,  at  the  date  of 
said  delivery  of  said  guaranty,  and  which  were  unpaid  at  the  date  of 
the  commencement  of  this  suit,  not  exceeding  $10,000. 

2.  The  jury  are  instructed  that  the  written  document  under  sea], 
offered  in  evidence  in  this  case,  implies  a  consideration,  and  consti- 
tutes an  unconditional  guaranty  of  whatever  overdraft,  if  any,  not 
exceeding  $10,000,  which  the  jury  may  find  from  the  evidence  that 


NOTICE    OF    ACCEPTANCE  245 

Gordon  &  Co.  actually  owed  the  plaintiff  at  the  date  of  the  bringing 
of  this  suit;  and  further,  if  you  believe  from  the  evidence  that  an 
account  was  stated  of  such  overdraft  between  plaintiff  and  J.  Gor- 
don &  Co.,  then  the  plaintiff  is  entitled  to  interest  on  the  amount 
found  due  at  such  statement,  from  the  date  thereof,  at  the  rate  of 
ten  per  cent,  per  annum. 

These  exceptions  form  the  basis  of  the  assignment  of  errors. 

The  charge  of  the  court  first  assigned  for  error,  and  its  refusal 
to  charge  upon  the  point  as  requested  by  the  plaintiffs  in  error,  raises    /i 
the  question  whether  the  guaranty  becomes  operative  if  the  guar- 
antor be  not  within  a  reasonable  time  informed  by  the  guarantee  of  ' 
hi s~ acceptance  of  it  and  intention  to  act  under  it. 

It  is  claimed  in  argument  that  this  has  been  settled  in  the  negative 
by  a  series  of  well-considered  judgments  of  this  court. 

It  becomes  necessary  to  inquire  precisely  what  has  been  thus  set- 
tled, and  what  rule  of  decision  is  applicable  to  the  facts  of  the  pres- 
ent case. 

In  Adams  v.  Jones,  12  Pet.  213,  Mr.  Justice  Story,  delivering  the 
opinion  of  the  court,  said :  "And  the  question  which,  under  this 
view,  is  presented,  is  whether,  upon  a  letter  of  guaranty,  addressed 
to  a  particular  person  or  to  persons  generally,  for  a  future  credit  to 
be  given  to  the  party  in  whose  favor  the  guaranty  is  drawn,  notice 
is  necessary  to  be  given  to  the  guarantor  that  the  person  giving  the 
credit  has  accepted  or  acted  upon  the  guaranty  and  given  the  credit 
on  the  faith  of  it ;  we  are  all  of  the  opinion  that  it  is  necessary ;  and 
this  is  not  now  an  open  question  in  this  court,  after  the  decisions 
which  have  been  made  in  Russell  v.  Clark,  7  Cranch  69 ;  Edmonds- 
ton  v.  Drake,  5  Pet.  624;  Douglass  v.  Reynolds,  7  Pet.  113;  Lee  v. 
Dick,  10  Pet.  482 ;  and  again  recognized  at  the  present  term  in  the  " 
case  of  Reynolds  v.  Douglass,  12  Pet.  497.  It  is  in  itself  a  reason- 
able rule,  enabling  the  guarantor  to  know  the  nature  and  extent  of 
his  liability,  to  exercise  due  vigilance  in  guarding  himself  against 
losses  which  might  otherwise  be  unknown  to  him,  and  to  avail  him- 
self of  the  appropriate  means  in  law  and  equity  to  compel  the  other 
parties  to  discharge  him  from  further  responsibility.  The  reason 
applies  with  still  greater  force  to  cases  of  a  general  letter  of  guar- 
anty, for  it  might  otherwise  be  impracticable  for  the  j guarantor  "to? 
know  to  whom  and  under  what  circumstances  the  guaranty  attached, 
and  to  what  period  it  might  be  protracted.  Transactions  between 
the  other  parties  to  a  great  extent  might  from  time  to  time  exist,  in 
which  credits  might  be  given  and  payments  might  be  made,  the 
existence  and  due  appropriation  of  which  might  materially  affect  his 
own  rights  and  security.  If,  therefore,  the  questions  were  entirely 
new,  we  should  not  be  disposed  to  hold  a  different  doctrine ;  and  we 
think  the  English  decisions  are  in  entire  conformity  to  our  own." 

In  Reynolds  v.  Douglass,  12  Pet.  504,  decided  at  the  same  term 
and  referred  to  in  the  foregoing  extract,  Mr.  Justice  McLean  stated 


246  COMMERCIAL    GUARANTIES 

the  rule  to  be  "That,  to  entitle  the  plaintiffs  to  recover  on  said  letter, 
of  credit,  they  must  prove  that  notice  had  been  given  in  a  reasonable 
time  after  said  letter  of  credit  had  been  accepted  by  them,  to  the 
defendants,  that  the  same  had  been  accepted;"  and  added:  "This 
notice,  need  not  be  proved  to  have  been  given  in  writing  or  in  any 
particular  form,  but  may  be  inferred  by  the  jury  from  facts  and  cir- 
cumstances which  shall  warrant  such  inference." 

There  seems  to  be  some  confusion  as  to  the  reason  and  founda- 
tion of  the  rule  and,  consequently,  some  uncertainty  as  to  the  cir- 
cumstances in  which  it  is  applicable.  In  some  instances  it  has  been 
treated  as  a  rule,  inhering  in  the  very  nature  and  definition  of  every 
contract,  which  requires  the  assent  of  a  party  to  whom  a  proposal 
is  made  to  be  signified  to  the  party  making  it,  in  order  to  constitute 
a  binding  promise  ;  in  others  it  has  beeen  considered  as  a  rule  spring- 
ing from  the  peculiar  nature  of  the  contract  of  guaranty,  which  re- 
quires, after  the  formation  of  the  obligation  of  the  guarantor,  and 
as  one  of  its  incidents,  that  notice  should  be  given  of  the  intention 
of  the  guarantee  to  act  under  it  as  a  condition  of  the  promise  of  the 
guarantor. 

The  former  is  the  sense  in  which  the  rule  is  to  be  understood  as 
having  been  applied  in  the  decisions  of  this  court.  This  appears  very 
plainly,  not  only  from  the  particular  consideration  of  the  cases 
themselves,  but  was  formally  declared  to  be  so  by  Mr.  Justice  Nel- 
son, speaking  for  the  court  in  delivering  its  opinion  in  the  case  of 
Mfg.  Co.  v.  Welch,  10  How.  475,  where  he  uses  this  language: 

"He  (the  guarantor)  has  already  had  notice  of  the  acceptance  of 
the  guaranty  and  of  the  intention  of  the  party  to  act  under  it.  The 
rule  requiring  this  notice  within  a  reasonable  time  after  the  accept- 
ance is  absolute  and  imperative  in  this  court,  according  to  all  the 
cases ;  it  is  deemed  essential  to  an  inception  of  the  contract ;  he  is. 
therefore,  advised  of  his  accruing  liabilities  upon  the  guaranty,  and 
may  very  well  anticipate  or  be  charged  with  notice  of  an  amount  of 
indebtedness  to  the  extent  of  the  credit  pledged." 

And  in  Wildes  v.  Savate,  1  Story  22,  Mr.  Justice  Story,  who  had 
delivered  the  opinion  in  the  case  of  Douglass  v.  Reynolds,  7  Pet. 
113,  after  stating  the  rule  requiring  notice  by  the  guarantee  of '  his 
acceptance,  said :  "This  doctrine,  however,  is  inapplicable  to  the 
circumstances  of  the  present  case ;  for  the  agreement  to  accept  was 
contemporaneous  with  the  guaranty  and,  indeed,  constituted  the 
consideration  and  basis  thereof." 

The  agreement  to  accept  is  a  transaction  between  the  guarantee 
'  and  guarantor,  and  completes  that  mutual  assent  necessary  to  a  valid 
contract  between  the  parties.  It  was,  in  the  case  cited,  the  considera- 
tion for  the  promise  of  the  guarantor.  And  wherever  a  sufficient 
consideration  of  any  description  passes  directly  between  them,  it 
operates  in  the  same  manner  and  with  like  effect.  It  establishes  a 
privity  between  them  and  creates  an  obligation.  The  rule  in  question 


NOTICE   OF   ACCEPTANCE  247 

proceeds  upon  the  ground  that  the  case  in  which  itapplies  is  an  offer 
or  proposal  on  the  part  of  the  guarantor,  which  does  not  become 
effective  and  binding  as  an  obligation  until  accepted  by  the  party 
to  whom  it  is  made ;  that  until  then  it  is  inchoate  and  incomplete  and 
may  be  withdrawn  by  the  proposer.  Frequently  the  only  considera- 
tion contemplated  is,  that  the  guarantee  shall  extend  the  credit  and 
make  the  advances  to  the  third  person,  for  whose  performance  of  his 
obligation,  on  that  account,  the  guarantor  undertakes.  But  a  guar- 
anty may  as  well  be  for  an  existing  debt,  or  it  may  be  supported  by  • 
some  consideration  distinct  from  the  advance  to  the  principal  debtor, 
passing  directly  from  the  guarantee  to  the  guarantor.  In  the  case 
of  the  guaranty  of  an  existing  debt,  such  a  consideration  is  neces- 
sary to  support  the  undertaking  as  a  binding  obligation.  In  both 
these  cases,  no  notice  of  assent,  other  than  the  performance  of  the 
consideration,  is  necessary  to  perfect  the  agreement ;  for,  as  Pro- 
fessor Langdell  has  pointed  out  in  his  Summary  of  the  Law  of  Con- 
tracts (Langdell  Cas.  on  Cont,  987),  "Though  the  acceptance  of 
an  offer  and  the  performance  of  the  consideration  are  different 
things,  and  though  the  former  does  not  imply  the  latter,  yet  the 
latter  does  necessarily  imply  the  former ;  and  as  the  want  of  either 
is  fatal  to  the  promise,  the  question  whether  an  offer  has  been  ac- 
cepted can  never,  in  strictness,  become  material  in  those  cases  in 
which  a  consideration  is  necessary ;  and  for  all  practical  purposes  it 
may  be  said  that  the  offer  is  accepted  in  such  cases  by  giving  or  per- 
forming the  consideration." 

If_the  guaranty  is  made  at  the  request  of  the  guarantee,  it  then 
becomes  the  answer  of  the  guarantor  to  a  proposal  made  to  him,  C 
and  .its  delivery  to  or  for  the  use  of  the  guarantee  completes  the--' 
communication  between  them  and  constitutes  a  contract.  The  same 
result  follows,  as  declared  in  Wildes  v.  Savage,  supra,  where  the 
agreement  to  accept  is  contemporaneous  with  the  guaranty,  and  con- 
stitutes its  consideration  and  basis.  It  must  be  so  wherever  there  is 
a  valuable  consideration,  other  than  the  expected  advances  to  be 
made  to  the  principal  debtor,  which  passes  at  the  time  the  under- 
taking is  given  from  the  guarantee  to  the  guarantor,  and  equally 
so  where  the  instrument  is  in  the  form  of  a  bilateral  contract,  in 
which  the  guarantee  binds  himself  to  make  the  contemplated  ad- 
vances, or  which  otherwise  creates,  by  its  recitals,  a  privity  between 
the  guarantee  and  the  guarantor.  For,  in  each  of  these  cases,  the 
mutual  assent  of  the  parties  to  the  obligation  is  either  expressed  or 
necessarily  implied. 

The  view  we  have  taken  of  the  rule  under  consideration,  as  re- 
quiring notice  of  acceptance  and  of  the  intention  to  act  under  the 
guaranty,  only  when  the  legal  effect  of  the  instrument  is  that  of  an 
offer  or  proposal,  and  for  the  purpose  of  completing  its  obligation 
as  a  contract,  is  the  one  urged  upon  us  by  the  learned  counsel  for 
the  plaintiff  in  error,  who  says,  in  his  printed  brief : 


248  COMMERCIAL   GUARANTIES 

"For  the  ground  of  the  doctrine  is  not  that  the  operation  of  the 
writing  is  conditional  upon  notice,  but  it  is,  that  until  it  is  accepted 
and  notice  of  its  acceptance  given  to  the  guarantor,  there  is  no  con- 
tract between  the  guarantor  and  the  guarantee;  the  reason  being 
that  the  writing  is  merely  an  offer  to  guaranty  the  debt  of  another, 
and  it  must  be  accepted  and  notice  thereof  given  to  the  party  offer- 
ing himself  as  security  before  the  minds  meet  and  he  becomes  bound. 
Until  the  notice  is  given,  there  is  a  want  of  mutuality;  the  case  is 
not  that  of  an  obligation  on  condition,  but  of  an  offer  to  become 
bound  not  accepted ;  that  is,  there  is  not  a  conditional  contract,  but 
no  contract  whatever." 

It  is  thence  argued  that  the  words  in  the  instrument  which  is  the 
foundation  of  the  present  action — "We  hereby  guarantee  unto  them, 
the  said  Wells,  Fargo  &  Co.,  unconditionally  at  all  times,  etc." — can 
not  have  the  effect  of  waiving  the  notice  of  acceptance,  because  they 
can  have  no  effect  at  all  except  as  the  words  of  a  contract,  and  there 
can  be  no  contract  without  notice  of  acceptance.  And  on  the  suppo- 
sition that  the  terms  of  the  instrument  constitute  a  mere  offer  to 
guaranty  the  debt  of  Gordon  &  Co.,  we  accept  the  conclusion  as  en- 
tirely just. 

But  we  are  unable  to  agree  to  that  supposition.  We  think  that  the 
instrument  sued  on  is  not  a  mere  unaccepted  proposal,  ^It  carries 
upon  its  face  conclusive  evidence  that  it  had  been  accepted  by  Wells, 
Fargo  &  Co.,  and  that  it  was  understood  and  intended  to  be,  on  de- 
J  livery  to  them,  as  it  took  place,  a  complete  and  perfect  obligation  of 
guaranty.  That  evidence  we  find  in  the  words — "for  and  in  con-  /  n 
sideration  of  one  dollar  to  us  paid  by  Wells,  Fargo  &  Co.,  the  receipt/  6 
of  which  is  hereby  acknowledged,  we  hereby  guarantee,  etc."  How 
can  that  recital  be  true  unless  the  covenant  of  guaranty  had  been\ 
made  with  the  assent  of  Wells,  Fargo  &  Co.,  communicated  to  the 
guarantors  ?  Wells,  Fargo  &  Co.  had  not  only  assented  to  it,  but  had 
paid  value  for  it,  and  that  into  the  very  hands  of  the  guarantors,  as 
they  by  the  instrument  itself  acknowledge. 

It  is  not  material  that  the  expressed  consideration  is  nominal. 
That  point  was  made,  as  to  a  guarantee,  substantially  the  same  as 
this  in  the  case  of  Lawrence  v.  McCalmont,  2  How.  452,  and  was 
overruled.    Mr.  Justice  Story  said : 

"The  guarantor  acknowledges  the  receipt  of  the  one  dollar  and  is 
now  estopped  to  deny  it.  If  she  had  not  received  it,  she  would  now 
be  entitled  to  recover  it.  A  valuable  consideration,  however  small 
or  nominal,  if  given  or  stipulated  for  in  good  faith,  is,  in  the  absence 
of  fraud,  sufficient  to  support  an  action  on  any  parol  contract ;  and 
this  is  equally  true  as  to  contracts  of  guarantee  as  to  other  con- 

{ tracts.  A  stipulation  in  consideration  of  one  dollar  is  just,  as  ef- 
fectual and  valuable  a  consideration  as  a  larger  sum  stipulated  for 
or  paid.  The  very  point  arose  in  Dutchman  v.  Tooth,  5  Bing.  (N. 
C.)  577,  where  the  guarantor  gave  a  guaranty  for  the  payment  of 


NOTICE   OF   ACCEPTANCE  249 

the  proceeds  of  the  goods  the  guarantee  had  consigned  to  his 
brother,  and  also  all  future  shipments  the  guarantee  might  make  in 
consideration  of  two  shillmgr,  and  sixpence  paid  him,  the  guarantor. 
And  the  court  held  the  guaranty  good,  and  the  consideration  suf- 
ficient." 

It  is  worthy  of  note  that  in  the  case  from  which  this  extract  is 
taken  the  guaranty  was  substantially  the  same  as  that  in  the  present 
case,  and  that  no  question  was  made  as  to  a  notice  of  acceptance. 
It  seems  to  have  been  treated  as  a  complete  contract  by  force  of  its 
terms. 

It  does  not  affect  the  conclusion,  based  on  these  views,  that  the 
present  guaranty  was  for  future  advances  as  well  as  an  existing 
debt.  It  can  not,  therefore,  be  treated  as  if  it  were  an  engagement, 
in  which  the  only  consideration  was  the  future  credit  solicited  and 
expected.  The_ rental  vf  th^  consideration  paid  by  the  guarantee 
tojhe  guarantor  shows  a  complete  contract,  based  upon  the  mutual 
assent  of  the  parties  ;  and  if  it  is  a  contract  at  all,  it  is  one  for  all  the  L 
purposes  expressed  in  it.  It  is  an  entirety  and  can  not  be  separated  , 
into  distinct  parts.  The  covenant  is  single  and  can  not  be  subjected 
in  its  interpretation  to  the  operation  of  two  diverse  rules. 

Of  course  the  instrument  takes  effect  only  upon  delivery.  But  in 
this  case  no  question  was  or  could  be  made  upon  that.  It  was  ad- 
mitted that  itwas  delivered  to  Gordon  for  delivery  to  the  plaintiffs 
below,  and  that  Gordon  delivered  it  to  them. 

^BuTTfwe  should  consider  that,  notwithstanding  the  completeness 
of  the  contract  as  such,  the  guaranty  of  future  advances  was  subject 
to  a  condition  implied  by  law  that  notice  should  be  given  to  the  guar- 
antor that  the  guarantee  either  would  or  had  acted  upon  the  faith  of 
it,  we  are  led  to  inquire,  what  effect  is  to  be  given  to  the  use  of  the 
words  which  declare  that  the  guarantors  thereby  "Guarantee  unto 
them,  the  said  Wells,  Fargo  &  Co.,  unconditionally,  at  all  times,  any 
indebtedness  of  Gordon  &  Co.,  etc.,  to  the  extent  and  not  exceeding 
the  sum  of  ten  thousand  dollars,  for  any  overdrafts  now  made,  or 
that  hereafter  may  be  made,  at  the  bank  of  said  Wells,  Fargo  &  Co." 

Upon  the  supposition  now  made,  the  notice  alleged  to  be  necessary 
arises  from  the  nature  of  such  a  guaranty.  It  is  not  and  can  not  be 
claimed  that  such  a  condition  is  so  essential  to  the  obligation  that  it 
can  not  be  waived.  We  do  not  see,  therefore,  what  less  effect  can 
be  ascribed  to  the  words  quoted  than  that  all  conditions  that  other- 
wise would  qualify  the  obligation  are  by  agreement  expunged  from 
it  and  made  void.  The  obligation  becomes  therein'  absolute  and  un- 
qualified ;  free  from  all  conditions  whatever.  This  is  the  natural, 
obvious  and  ordinary  meaning  of  the  terms  employed,  and  we  can 
not  doubt  that  they  express  the  real  meaning  of  the  parties.  It  was 
their  manifest  intention  to  make  it  unambiguous  that  Wells.  Fargo 
&  Co.,  for  any  indebtedness  that  might  arise  to  them  in  consequence 
of  overdrafts  by  Gordon  &  Co.,  might  securely  look  to  the  guar- 


250  COMMERCIAL    GUARANTIES 

antors  without  the  performance  on  their  part  of  any  conditions 
precedent  thereto  whatever. 

It  has  always  been  held  in  this  court  that,  notwithstanding  the 
contract  of  guaranty  is  the  obligation  of  a  surety,  it  is  to  be  con- 
strued as  a  mercantile  instrument  in  furtherance  of  its  spirit,  and 
liberally  to  promote  the  use  and  convenience  of  commercial  inter- 
course. 

This  view  applies  with  equal  force  to  the  exceptions  to  the  other 
charges  and  refusals  to  charge,  of  the  court  below.  These  exceptions 
are  based  on  the  propositions  : 

1.  That  if  Wells,  Fargo  &  Co.  neglected  to  notify  the  defend- 
ants below  of  the  amount  of  the  overdraft  within  a  reasonable  time 
after  closing  the  account  of  Gordon  &  Co. ;  and 

2.  That  if  they  failed  within  a  reasonable  time  after  demand  of 
payment  made  upon  Gordon  &  Co.  to  notify  the  defendants  of  the 
default,  the  plaintiffs  could  not  recover  upon  the  guaranty. 

For,  if  the  necessity,  in  either  or  both  of  these  contingencies  ex- 
isted, to  give  the  notice  specified,  it  was  because  the  duty  to  do  so 
was,  by  construction  of  law,  made  conditions  of  the  contract. 

But  by  its  terms,  as  we  have  shown,  the  contract  was  made  abso- 
lute, and  all  conditions  waived. 

It  is  undoubtedly  true,  that  if  the  guarantee  fails  to  give  reason- 
able notice  to  the  guarantor  of  the  default  of  the  principal  debtor, 
and  loss  or  damage  thereby  ensued  to  the  guarantor,  to  that  extent 
the  latter  is  discharged ;  but  both  the  laches  of  the  plaintiff  and  the 
loss  of  the  defendant  must  concur  to  constitute  a  defense. 

If  any  intermediate  notice,  at  the  expiration  of  the  credit,  of  the 
extent  of  the  liability  incurred  is  requisite,  the  same  rule  applies. 
Such  was  the  express  decision  of  this  court  in  the  case  of  Mfg.  Co. 
v.  Welch  (supra).  An  unreasonable  delay  in  giving  notice,  or  a 
failure  to  give  it  altogether,  is  not  a  bar,  of  itself. 

We  lind  no  error  in  the  record,  and  the  judgment  is  affirmed. 


BLACK,  STARR  AND  FROST  v.  EDWARD  R.  GRABOW 

216  Mass.  516,  104  N.  E.  346  (1914). 

Rugg,  C.  J. :     This  is  an  action  upon  a  guaranty  of  the  tenor 
following : 

"Port  Antonio,  Jamaica,  B.  W.  L,  February  22,  1909. 
"Mr.  Witherby  Black,  care  Black,  Starr  &  Frost,  New  York  City : 
"Dear  Sir — Mr.  I.  Percy  Mills  has  asked  me  to  guarantee  a  bill 
that  he  is  incurring  at  your  store  to  the  amount  of  four  hundred 


NOTICE    OF    ACCEPTANCE 


251 


dollars.     I  hereby  do  so,  and  if  same  is  not  paid  within  six  months 
from  date  that  upon  presentation  of  the  bill  to  me  I  will  pay  it. 

"Yours  very  truly, 

"E.  R.  Grabow." 

This  letter  was  given  by  the  defendant  to  I.  Percy  Mills,  who  in 
turn  handed  it  to  the  plaintiff.     On  March  9,   1909,  the  plaintiff, 
after  receipt  of  the  letter,  delivered  to  Mills  a  diamond  ring  for  the 
price  of  $450,  a  credit  being  given  him  for  $50.     No  notice  was 
given  by  the  plaintiff  to  the  defendant  that  the  guaranty  had  been 
accepted  by  it.     Mills  was  in  the  employment  of  the  defendant  as 
iin  advertising  agent  at  the  time  the  letter  was  written.    There  is  no ./ 
evidence,  however,  that  the  defendant  had  any  knowledge  that  hisy 
/letter  actually  had  reached  the  plaintiff,  or  had  been  accepted  and 
/ acted "upon  by  it.     There  is  nothing  to  show  that  the  plaintiff  and 
[the  defendant  ever  had  any  communication  with  each  other  upon 
Hhis  matter  before  the  date  of  the  letter.     The  point  to  be  decided 
is  whether  liability  became  fixed  upon  the  defendant. 

It  was  said  by  Hoar,  J.,  in  Whiting  v.  Stacy,  15  Gray  270,  "The 
doctrine  has  been  repeatedly  announced  by  this  court,  and  it  must 
now  be  regarded  as  the  settled  law  of  Massachusetts,  that,  as  a  gen- 
eral rule,  in  order  to  maintain  an  action  against  a  guarantor  of  a  fu-  ' 
hire  contingent  event,  notice  that  the  guaranty  has  become  opera- 
tive must  be  given  in  a  reasonable  time  to  the  guarantor,  i  Babcock 
v.  Bryant,  12  Pick.  133;  Bickford  v.  Gibbs,  8  Cush.  154,  156;  Cour- 
tis v.  Dennis,  7  Met.  510,  519;  Clark  v.  Remington,  11  Met.  361, 
366."     The  form  of  guaranty  in  that  case  was  very  similar  to  that 
in  the  case  at  bar.     In  Bishop  v.  Eaton,  161  Mass.  496,  it  was  said 
by  Knowlton,  J.,  at  500,  "It  has  been  held  in  cases  like  the  present, 
kvhere  the  guarantor  would  not  know  of  himself  from  the  nature  of 
(the  transaction,  whether  the  offer  had  been  accepted  or  not,  that  he 
lis  not  bound  without  notice  of  the  acceptance,  seasonably  given  after 
/the  performance  which  constitutes  the  consideration.     To  the  same 
/effect  see   Schlessinger  v.   Dickinson,   5   Allen  47,   51;   Mussey  v. 
[  Rayner,  22  Pick.  223,  228;  Cumberland  Glass  Manuf.  Co.  v.  Whea- 
ton,  208  Mass.  425,  431 ;  Lascelles  v.  Clark,  204  Mass.  362,  376. 
The  question  now  presented  did  not  arise  in  Vinal  v.  Richardson, 
13  Allen  521,  or  Welch  v.  Walsh,  177  Mass.  555. 

Although  it  may  be  that  there  is  no  universal  doctrine  in  this 
commonwealth  that  "acceptance  of  an  offer  must  be  communicated 
in  order  to  make  a  valid  simple  contract,"  Lennox  v.  Murphy,  17b 
Mass.  370,  373,  yet  it  is  true  that /where  a  guaranty  is  in  the  nature 
of  an  offer  and  not  pursuant  to  some  previous  understanding  or  ar- 
rangement, and  no  consideration  is  acknowledged  in  the  instrument 
and  none  moves  directly  to  the  guarantor,  and  the  circumstances  of  ^ 
the  parties  and  the  transaction  are  not  such  as  to  indicate  that 
knowledge    of    acceptance    quickly    will    come    to    the    guarantor,  . 


252  COMMERCIAL    GUARANTIES 

notice  of  acceptance  must  be  given  within  a  reasonable  time  in 
order  that  the  guarantor  may  be  held.  Allen  v.  Pike,  3  Cush.  238 ; 
Davis  Sewing  Machine  Co.  v.  Richards,  115  U.  S.  524;  Mclver 
v.- Richardson,  1  M.  &  S.  557,  564;  Mozley  v.  Tinkler,  1  Cr.,  M.  & 
R.  692;  American  Agricultural  Chemical  Co.  v.  Ellsworth,  109 
Maine  195. 

The  case  at  bar  comes  within  this  rule.  It  was  an  offer  which, 
under  all  the  attendant  conditions,  required  notice  of  acceptance  in 
order  to  make  it  a  binding  contract.  The  transaction  would  not 
warrant  the  presumption  of  a  waiver  of  notice.  The  relation  of  the 
parties  was  not  such  as  to  support  the  conclusion  that  the  defend- 
ant knew  through  other  channels  that  his  offer  to  become  responsi- 
ble has  been  acted  upon  by  the  plaintiff.  The  guaranty  was  dated 
in  the  "West  Indies.  There  is  nothing  in  the  record  to  show  for 
how  long  a  time  Mills  remained  there,  or  when  he  returned  to  this 
country.  The  nature  of  the  relation  between  an  employer  and  an 
advertising  agent  is  not  such  as  to  call  for  the  inference  of  knowl- 
edge of  the  event  speedily  after/the  delivery  to  him  of  a  diamond 
ring. 

Judgment  reversed. 

Other  cases  holding  that  notice  of  acceptance  is  necessary  are :  Gardner  v. 
Lloyd,  110  Pa.  St.  278,  2  Atl.  562;  Miami  County  National  Bank  v.  Golcftrrg; 
133  Wis.  175,  113  X.  W.  391,  15  L.  R.  A.  (N.  S.)  1115n;  Deering  v.  Mortell, 
21  S.  Dak.  159,  110  N.  W.  86,  16  L.  R.  A.  (N.  S.)  352n ;  J.  R.  Watkins  Medi- 
cal Co.  v.  McCall,  116  Minn.  389,  133  N.W.966;  American  Agr.  Chemical  Co. 
v.  Ellsworth,  109  Maine  195,  83  Atl.  546;  Asmussen  v.  Post  Printing  and  Pub- 
lishing Co.,  26  Colo.  App.  416,  143  Pac.  396;  Lester  Piano  Co.  v.  Romney,  41 
Utah  436,  126  Pac.  325._ 

Where  the  guaranty  is  given  in  response  to  a  request  for  it  by  the  creditor, 
no  notice  of  acceptance  is  necessary.  Stewart  v.  Sharp  County  Bank,  71  Ark. 
585,  76  S.  W.  1064 ;  J.  L.  Mott  Iron  Works  v.  Clark,  87  S.  Car.  199,  69  S.  E. 
227;  Lester  Piano  Co.  v.  Romney,  41  Utah  436,  126  Pac.  325;  Shows  v. 
Steiner,  175  Ala.  363,  57  So.  700. 

Contra:  Acme  Mfg.  Co.  v.  Reed,  197  Pa.  359,  47  Atl.  205,  80  Am.  St.  832; 
American  Agr.  Co.  v.  Ellsworth,  109  Mame~~195,  83  Atl.  546. 

Where  the  guaranty  states  a  consideration  this  is  sufficient  to  show  an  ab- 
solute guaranty  as  distinguished  from  a  mere  offer  to  guaranty  and  therefore 
notice  of  acceptance  is  not  necessary.  Davis  v.  Wells,  Fargo  &  Co.,  104  U.  S. 
159,  26  L  ed.  686 ;  Buhrer  v.  Baldwin,  137  Mich.  263,  100  N.  W.  468 ;  McCon- 
non  v.  Laursen,  22  N.  Dak.  604,  135  N.  W.  213;  Bank  of  California  v.  Union 
Pkg.  Co.,  60  Wash.  456,  111  Pac.  573. 

Contra :  Acme  Mfg.  Co.  v.  Reed,  197  Pa.  359.  47  Atl.  205,  80  Am.  St.  832 ; 
American  Agr.  Chemical  Co.  v.  Ellsworth,  109  Maine  195.  83  Atl.  546. 

Where  the  guaranty  is  executed  contemporaneously  with  and  as  a  part  of 
the  consideration  for  the  transaction  guaranteed,  notice  of  acceptance  is  not 
required.  Closson  v.  Billman,  161  Ind.  610,  69  N.  E.  449;  Cumberland  Glass 
Mfg.  Co.  v.  Wheaton,  208  Mass.  425,  94  N.  E.  803. 

Contra:  American  Agricultural  Chemical  Co.  v.  Ellsworth,  109  Maine  195, 
83  Atl.  546. 

Where  notice  of  acceptance  is  required  it  is  not  necessary  that  such  notice 
be  given  by  the  creditor.  Knowledge  is  equivalent  to  notice  from  whatever 
source  derived,  if  received  within  a  reasonable  time.    Greer  Machinery  Co.  v. 


* 


NOTICE    OF    ACCEPTANCE  253 

Sears,  119  Ky.  697,  66  S.  W.  521  ;  Asmussen  v.  Post  Printing  and  Publishing 
Co.,  26  Colo.  App.  416,  143  Pac.  396;  Cumberland  Glass  Mfg.  Co.  v.  Wheaton, 
208  Mass.  425,  94  N.  E.  803. 


WRIGHT  v.  GRIFFITH  ET  AL. 

121  I, id.  478,  23  N.  E.  281  (1890). 

Mitchell,  C.  J. :     Action  upon  a  writing  in  the  following  words : 

"Union  City,  Ind.,  March  17,  1882. 
"Messrs.  Griffith  Brothers : 

"Please  let  my  daughter,  Mrs.  W.  E.  Headington,  have  what 
goods  she  wants  and  I  will  stand  good  for  the  money  to  settle  the 
bills.     You  will  find  the  pay  part  all  right  with  her  I  think. 

"Yours  truly, 

"Wm.  Wright." 

The  questions  presented  arise  on  the  complaint,  the  material  aver- 
ments of  which  are  to  the  effect  that  Mrs.  Headington  applied  to 
/the  plaintiffs  to  purchase  millinery  goods,  and  that  the  plaintiffs  de- 
I  clined  to  furnish  them  to  her  on  credit;  that  thereupon,  in  consid- 
Jj-j  eration  that  they  agreed  to  sell  and  deliver  to  her  from  time  to  time 
7v4  on  credit  such  goods  and  merchandise  as  she  might  require  in  her 
\  business,  the  defendant,  her  father,  by  the  contract  above  set  out, 
Vpromised  and  agreed  to  pay  for  the  goods  so  to  be  furnished. 

It  is  averred  that,  relying  upon  the  agreement  so  made,  the  plain- 
tiffs from  time  to  time  sold  and  delivered  to  Mrs.  Headington  goods 
and  merchandise  to  the  amount  of  $2,264.56,  and  that  there  rerpains 
due  them  on  account  thereof  $426.78,  for  which  they  pray  judg- 
.    ment  against  the  defendant. 

It  is  contended  that  the  complaint  fails  to  state  a  cause  of  action, 
because  it  contains  no  allegation  that  the  plaintiffs,  within  a  rea- 
sonable time  after  receiving  the  communications  above  set  out,  no- 
tified the  defendant  of  the  acceptance  of  the  proposal  or  direction 
therein  contained. 

The  rule  is  abundantly  maintained  which  required  that  upon  an 
offer  or  mere  proposal  to  become  responsible  for  'credit,  which  may, 
or  may  not,  be  extended  to  another,  the  person  making  the  offer 
\  must  be  notified  within  a  reasonable  time  of  its  acceptance  in  order 
I  that  he  may  be  held  as  a  guarantor.  This  is  so,  upon  the  familiar 
principle  that,  while  the  proposition  remains  pending,  without  no- 
tice of  acceptance  that  simultaneous  concurrence  of  mind  essential 
to  the  completion  of  a  contract  has  not  taken  place.  Furst  &:  Brad- 
ley Mfg.  Co.  v.  Black,  111  Ind.  308,  and  cases  cited;  Powers  v. 
Bumcratz,  12  Ohio  St.  273  ;  Brandt  Suretyship  and  Guaranty,  §  157. 
"A  mere  offer,"  as  has  often  been  said,  "not  accepted,  is  not  a 
contract,  and  a  mere  mental  acceptance  of  a  proposition,  not  corn- 


254 


COMMERCIAL    GUARANTIES 


municated  to  the  party  to  be  charged,  is  not  an  acceptance  at  all  in 
the  eyes  of  the  law."  Kellogg  v.  Stockton,  29  Pa.  St.  460;  Walker 
v.  Forbes,  25  Ala.  139  (60  Am.  Dec.  498). 

Where,  however,  the  delivery  of  the  guaranty  is  not  a  mere  in- 
cipient step  in  the  transaction,  but  is  in  fact  a  part,  or  the  consum- 
mation of  the  contract  to  which  it  is  collateral,  the  acceptance  of 
the  guaranty  and  the  performance  of  the  consideration  upon  which 
it  rests  are  all  that  are  essential  to  make  the  contract  complete  and 
enforceable.  Snyder  v.  Click,  112  Ind.  293,  and  cases  cited;  Davis 
v.  Wells,  104  U.  S.  159.  As  has  been  well  observed,  however, 
"(are  must  be  taken  in  all  cases  to  mark  the  distinction  between  a 
consummate  and  perfect  guaranty,  and  a  mere  proposal,  or  offer, 
or  tender  of  guaranty,  which  must  be  accepted,  and  the  acceptance 
notified  to  the  maker,  and  his  final  assent  to  the  engagement  be  ob- 
tained ere  it  can  become  a  perfect  and  concluded  contract."  3  Ad- 
dison Contracts,  §1115. 

Mrs.  Headington,  so  it  is  averred  in  the  complaint,  applied  to  the 
plaintiffs  to  purchase  goods  on  credit.  The  application  was  de- 
clined. Then  followed  the  letter  of  her  father,  in  which  he  re- 
quested them  to  let  her  have  what  goods  she  wanted,  adding,  "I 
will  stand  good  for  the  money  to  settle  the  bills."  Thereupon,  in 
reliance  upon  the  promise  contained  in  the  letter,  goods  were  fur- 
nished as  requested.  YThe  letter  was  the  final  consummation  of  a. 
pending  arrangement,  in  pursuance  of  which  the  writer's  daughter 
was  furnished  with  goods.  \ 

(When  the  contract  of  guaranty  is  executed  contemporaneously 
with,  and  as  a  part  of,  the  consideration  for  the  contract  or  trans- 
action guaranteed,  the  law  imputes  notice  to  all  the  parties  imme- 
diately related  to  the  transaction  of  its  character  and  extent,  and 
no  further  notice  of  the  acceptance  of  the  guaranty  is  required. 
Furst  &  Bradley  Mfg.  Co.  v.  Black,  supra;  Brandt  Suretyship  and 
Guaranty,  §  164;  Paige  v.  Parker,  8  Gray  211. 

Moreover,  .jt  is  an  established  rule,  applicable  to  cases  like  the 
present,  that,  if  upon  a  fair  construction  of  the  instrument  it  ap- 
pears to  be  the  personal  undertaking  of  the  guarantor  to  pay  For 
goods  sold,  or  to  be  sold  to  a  third  person,  it  will  be  regarded  as  an 
absolute  promise  or  conclusive  guaranty,  which  when  acted  on, 
makes  the  promisor  immediately  liable,  and  no  notice  is  necessary 
1  of  the  acceptance  of  the  guarantv.  I  Ward  v.  Wilson,  100  Ind.  52 
(50  Am.  R.  763)  ;  Kline  v.  Ravmond,  70  Ind.  271  ;  Wills  v.  Ross, 
77  Ind.  1  (40  Am.  R.  279)  ;  Bi'rdsall  v.  Heacock.  32  Ohio  St.  177; 
Wise  v.  Miller,  45  Ohio  St.  388;  Powers  v.  Bumcratz,  supra ;  Doug- 
lass v.  Howland,  24  Wend.  35 ;  Brandt  Suretyship  and  Guaranty, 
§  167. 

The  contract  involved  in  the  present  case  is  a  direct  engagement 
to  pay.  The  language  is  in  effect,  "let  my  daughter  have  what  goods 
she  wants  and  I  will  pay  the  bills."    As  was  said  in  Smith  v.  Dann, 


NOTICE   OF   ACCEPTANCE  255 

6  Hill  543,  a  case  parallel  with  the  present :  "But  here  the  under- 
taking was  absolute.  The  defendant  said  to  the  plaintiffs,  in  sub- 
stance, 'if  you  deliver  the  goods,  I  will  guaranty  the  payment.'  We 
can  not  add  a  condition  that  the  defendant  shall  have  notice.  He 
should  have  provided  for  that  himself  in  the  proposal  made  to  the 
plaintiffs."  Scott  v.  Myatt,  24  Ala.  489 ;  Union  Bank,  etc.,  v.  Cos- 
ter, 3  N.  Y.  203. 

According  to  its  terms  the  guaranty  is  not  only  absolute,  but  it 
is  continuing.  There  is  nothing  in  the  letter  to  indicate,  or  from 
which  the  inference  can  arise,  that  the  liability  of  the  guarantor 
was  to  be  restricted  to  a  single  transaction ;  on  the  contrary,  the 
language,  which  need  not  be  repeated,  indicates  that  successive  bills 
were  contemplated.  The  rule  is  that  unless  the  words  in  which  the' 
guaranty  is  expressed  fairly  imply  that  the  liability  of  the  guarantor 
is  to  be  limited,  it  continues  until  the  guaranty  is  revoked.  Brandt 
Suretyship  and  Guaranty,  §§  133,  134.  As  we  have  seen,  the  lan- 
guage here  is  without  limitation. 

We  find  no  error. 

Judgment  affirmed,  with  costs. 

See  also  Douglass  v.  Howland,  24  Wend.  (N.  Y.)  35,  49;  Smith  v.  Dann,  6 
Hill  (N.  Y.)  543;  Powers  v.  Bumcratz,  12_QMq_5j^273  ;  Wilcox  v.  Draper, 
12  Nebr.  138,  10  N.  W.  579,  41  Am.  Rep.  763;  McCarroll  v.  Red  Diamond 
Clothing  Co.,  105  Okla.  443,  151  S.  W.  1012,  43  L.  R.  A.  (N.  S.)  475;  Frost  v. 
Standard  Metal  Co.,  215  111.  240,  74  N.  E.  139. 


WILLIAM  SANDERS  ET  AL.,  PLAINTIFFS  IN  ERROR,  v. 
JOHN  ETCHISON,  DEFENDANT  IN  ERROR 

36  Ga.  404  (1867). 

The  Lawrenceville  Manufacturing  Company,  on  the  1st  of  Au- 
gust, 1854,  made  and  delivered  to  John  Etchison  their  note  for 
$380.88,  due  one  hundred  and  sixty  days  after  its  date. 

Subsequently,  to  wit :  on  the  7th  day  of  February,  1855,  twenty- 
seven  stockholders  of  said  company  executed  a  guaranty  in  these 
words :  "Georgia,  Gwinnett  County.  We,  the  undersigned,  stock- 
holders of  the  Lawrenceville  Manufacturing  Company,  hereby  guar- 
antee the  payment  of  all  the  debts  heretofore  made  and  now  out- 
standing against  said  company,  and  bind  ourselves  personally  for 
the  payment  of  the  same,  to  all  the  creditors  of  the  company  who 
will  not  sue,  but  indulge  the  company  upon  their  claims  for  ten 
months  from  this  time,  we  to  be  liable  to  the  creditors  for  the  whole 
amount ;  but  as  between  each  other  in  proportion  to  the  stock  owned 
by  each."  On  the  16th  of  August,  1856,  Etchison  sued  the  company 
on  said  note,  and  obtained  final  judgment  the  17th  of  March,  1857. 


256  COMMERCIAL    GUARANTIES 

Afterward  he  brought  suit  upon  said  guaranty  against  all  of  the 
guarantors.     *     *     *x 

Walker,  J.  :2  The  great  question  in  this  case  arises  out  of  the 
construction  of  the  instrument  sued  on.  Much  has  been  written  on 
the  subject  of  guaranty,  and*~rnahy  cases  decided  involving  ques- 
tions connected  with  it.  It  is  difficult,  perhaps  impossible,  to  recon- 
cile all  the  decisions.  In  2  Am.  L.  C,  from  p.  33  to  p.  101,  this 
whole  subject  is  elaborately  examined,  and  all  the  cases  collated. 
From  an  examination  of  the  decisions  for  the  purpose  of  determin- 
ing in  what  classes  of  cases  notice  of  an  intention  to  act  under  a 
guaranty  must  be  given  to  a  guarantor,  in  order  to  bind  him ;  and 
in  what  classes  of  cases  a  guaranty  will  take  effect  on  the  doing,  or 
forbearing,  some  definite  thing  as  its  consideration,  perhaps  the  fol- 
lowing general  rule  may  fairly  be  deduced  :  Whenever  this  guaranty 
is  not  positive,  but  amounts  to  a  mere  offer  to  guaranty,  if  trie  other 
party  will  agree  to  accept  it,  or  where  the  credit  to  be  given,  or 
other  action,  which  is  to  be  the  consideration  of  the  guaranty,  is 
executory  and  uncertain  as  to  the  amount  for  which,  or  the  time 
at  which,  the  guarantor  is  to  become  liable — as  for  instance,  an  offer 
to  guarantee  payment  for  goods  of  uncertain  kind,  value  or  amount, 
to  be  sold  at  a  future  time — then  notice  of  acceptance  must  be  given 
to  the  guarantor  in  order  to  bind  him.  But  where  the  undertaking 
of  the  guarantor  is  positive,  and  the  amount  he  agrees  to  guaranty 
is  fixed,  and  the  guaranty  is  to  take  effect  on  the  doing  or  forbear- 
ing some  definite  thing  as  its  consideration,  then  no  notice  of  ac- 
ceptance is  necessary ;  but  the  liability  of  the  guarantor  is  fixed  as 
soon  as  the  consideration  is  cjuxipletedL  This  is  substantially  the 
rule  deduced  by  our  brother  Hull  from  the  authorities,  and  we  are 
disposed  to  adopt  it  as  a  correct  deduction  from  the  numerous  de- 
cisions made  on  the  subject  of  guaranty.  In  2  Bouv.  Ins.  56,  the 
rule  is  laid  down  thus:  "If  the  instrument  does  not  express  an  ab- 
solute engagement,  but  a  proposal  or  offer  to  guaranty,  the  contract 
is  not  complete  until  the  party  to  whom  the  proposal  has  been  made, 
has  signified  his  acceptance  of  it.  [A.  distinction  must  be  made  be- 
ll tween  an  offer  to  guaranty  at  a  future  time,  and  an  absolute  pres- 
ent guaranty.  The  former  is  not  binding  till  accepted ;  the  latter 
.;  takes  effect  as  soon  as  madeT/  An  example  or  two  will  explain  this 
difference:  T  guaranty  the  payment  of  any  goods  which  A.  B. 
delivers  to  C.  D.'  is  a  present  guaranty,  and  the  party  to  whom  it  is 
given  may  act  upon  it  without  further  communication.  On  the 
other  hand,  T  have  no  objection  to  guaranty  you  against  any  loss 
for  giving  them  this  credit ;'  T  have  no  objection  to  be  answerable 
as  far  as  £50.  For  any  reference,  apply  to  Messrs.  B.  &  Co.,  of 
this  place/  have  been  held  as  mere  proposals  to  guaranty,  and  that 

1  Part  of  statement  of  facts  omitted. 

2  Part  of  opinion  omitted. 


CONTINUING    GUARANTY  257 

the  party  to  whom  they  were  severally  made  ought  to  have  given 
notice  to  the  maker  of  his  acceptance."  Apply  these  tests  to  this 
contract,  and  we  are  very  clear  that  it  is  a  present  absolute  guar- 
anty, and  the  defendants  are  liable.  Its  language  is,  "We  hereby 
guaranty  the  payment  of  all  the  debts  heretofore  made  and  now 
outstanding  against  said  company,  and  bind  ourselves  personally 
for  the  payment  of  the  same,  to  all  the  creditors  of  the  company, 
who  will  not  sue,  but  indulge  the  company  upon  these  claims  for 
ten  months  from  this  time."  The  consideration  for  the  guaranty 
was  indulgence  of  the  company  for  ten  months  from  that  date  with- 
out suit — this  indulgence  was  given.  This  plaintiff  was  one  of  the 
class  to  be  guaranteed — his  debt  was  theretofore  made  and  then 
outstanding  against  the  company;  the  amount  was  fixed,  and  the 
guaranty  was  to  take  effect  on  the  forbearance  to  sue,  as  the  con- 
sideration ;  and  therefore  no  notice  of  the  acceptance  of  the  guar- 
anty was  necessary.^  Such  being  the  case,  the  court  did  right  to 
hold  defendants  liable. 
Judgment  affirmed. 


SECTION  6.   CONTINUING  GUARANTY 

BIRDSALL  v.  HEACOCK ' 
32  Ohio  St.  177,  30  Am.  Rep.  572  (1877). 

The_jDriginal  action  was  brought  by  plaintiff  in  error,  in  the 
court  of  common  pleas  of  Stark  county,  against  one  T.  C.  Heacock, 
as  principal  debtor,  and  the  defendant  in  error,  as  guarantor,  seek- 
ing to  recover  a  balance  remaining  due  on  an  account  for  lumber 
sold  and  delivered  by  plaintiff's  firm  to  the  said  T.  C.  Heacock. 
The  first  items  of  the  account  bore  date  May  11,  1868,  and  were  of 
the  value  of  $226.  Then  follow  sundry  items  for  lumber  delivered 
at  different  dates,  extending  down  to  January,  1869,  and  amounting 
in  the  aggregate  to  $2,962.  Credits  are  given  for  payments,  at 
sundry  times,  to  the  amount  of  $2,522.  The  court  rendered  judg- 
ment against  T.  C.  Heacock  for  the  balance  appearing  to  be  due  on 
plaintiff's  account.  But  as  to  the  cause  of  action  stated  in  the  peti- 
tion against  the  present  defendant,  he  demurred,  on  the  ground  that 
the  facts  stated  did  not  constitute  a  cause  of  action  against  him ; 
and  oh~thTs "demurrer  judgment  was  rendered  in  his  favor. 

To  reverse  this  judgment  on  the  demurrer,  the  plaintiff  filed  his 
petition  in  error  in  the  district  court,  where  the  question  of  error 
was  reserved  for  the  decision  of  the  Supreme  Court. 

That  part  of  the  petition  which  states  the  complaint  against  the 
present  defendant,  was  as  follows : 
17— De  Witt. 


258  COMMERCIAL    GUARANTIES 

"And  the  plaintiff  further  says  that  in  consideration  that  the  firm 
of  E.  H.  Potter  would  sell  to  said  T.  C.  Heacock  lumber  at  his 
request,  such  as  he  would  need  in  the  business  of  a  builder  and 
lumber  merchant ;  which  business  said  Heacock  was  about  to  en- 
gage in  at  the  time  he  commenced  purchasing  lumber  of  said  firm; 
the  said  Edwin  Heacock  did  promise  and  guarantee  in  writing  to 
said  firm  that  he  would  be  accountable  to  said  firm  for  whatever 
lumber  said  firm  might  sell  to  said  T.  C.  Heacock  in  his  said  business 
and  make  it  all  right,  a  copy  of  which  guaranty  is  here  given  as  a 
part  hereof : 

"'Alliance,  May  11,  1868. 

"  'E.  H.  Potter — Please  send  my  son  the  lumber  he  asks  for  and 
it  will  be  all  right.  I  had  to  get  him  to  write  this  as  I  was  kicked 
with  a  horse  one  week  ago  on  the  arm  and  can  not  more  than  write 
my  name,  if  that.  (Signed)  Edwin  Heacock.'" 

That  said  T.  C.  Heacock  is  the  soil  of  Edwin  Heacock,  and  at 
the  time  of  writing  said  guaranty  and  the  commencement  of  deal- 
ing between  said  firm  and  him  in  said  account,  the  said  T.  C.  Hea- 
cock was  about  to  engage  in  the  business  of  building  houses  and 
keeping  a  lumber  yard  for  the  sale  of  lumber  of  all  kinds,  in  the 
village  of  Alliance,  in  said  county  of  Stark,  and  had  no  capital  or 
credit  of  his  own.  That  he  expected  to  carry  on  said  business 
through  several  seasons,  all  of  which  was  known  to  the  said  E.  H. 
Potter  and  to  said  Edwin  Heacock,  and  in  order  to  give  him,  said 
T.  C.  Heacock,  such  credit  from  said  firm  as  he  might  desire  in  his 
said  business,  said  Edwin  Heacock  executed  said  letter  of  guaranty 
and  delivered  it  to  his  son,  T.  C.  Heacock,  who  is  the  son  men- 
tioned therein,  for  the  purpose  of  its  being  delivered  to  the  firm  of 
E.  H.  Potter,  as  a  guaranty  to  them,  and  to  procure  credit  for  his 
son,  and  it  was  signed  and  executed  by  said  Edwin  Heacock,  on  or 
about  May  11,  1868,  and  produced  to  said  firm  and  delivered  to  it 
by  said  T.  C.  Heacock  when  he  first  applied  to  them  to  buy  lumber. 
And  induced  by  said  letter,  and  in  faith  of  said  promise  and  guar- 
anty which  was  then  delivered  to  said  firm  in  the  way  of  his  busi- 
ness as  such  builder  and  keeper  of  a  lumber  yard,  and  for  reasona- 
ble prices,  and  on  reasonable  terms,  agreed  upon  between  said  firm 
and  said  T.  C.  Heacock,  said  firm  sold  lumber  to  said  T.  C.  Hea- 
cock, at  different  times,  as  shown  in  the  foregoing  account,  for  the 
purpose  of  enabling  him  to  carry  on  his  said  business,  in  all  amount- 
ing to  the  sum  of  $2,962.51,  up  to  September  15,  1871,  on  which 
the  sum  of  $2,522.78  has  been  paid,  as  aforesaid,  and  the  credit 
and  time  of  payment  of  the  said  lumber  by  said  Heacock  to  said 
firm  has  long  since  expired,  and  yet  said  T.  C.  Heacock  has  not, 
nor  has  said  Edwin  Heacock,  paid  said  sum  yet  due,  nor  any 
part  thereof.  And  of  all  of  said  premises  said  Edwin  Heacock  had 
frequent  notice,  and  yet  he  refuses  to  pay  the  said  firm,  and  to  this 


CONTINUING    GUARANTY  259 

partner,  as  surviving  partner  thereof,  the  said  sum  so  due,  or  any 
part  thereof,  although  often  requested  so  to  do. 

Scott,  J. :  Counsel  for  defendant  in  error  claims  that  the  in- 
strument of  writing  upon  which  the  petition  in  this  case  bases  the 
liability  of  their  client  is  not  a  guaranty  of  any  kind.  The  peti- 
tion, however,  avers  that  it  was  acted  upon  as  a  guaranty  by  the 
plaintiff's  firm ;  and  from  its  terms  we  think  it  was  intended  by  the 
writer  that  it  should  be  so  understood  and  acted  on.  It  is  not  a 
representation  as  to  the  solvency  or  pecuniary  circumstances  of  the 
party  about  to  ask  credit  from  the  plaintiff ;  but  a  request  or  direc- 
tion that  such  credit  should  be  given,  and  an  unqualified  assurance 
that  the  doing  so  would  "be  all  right."  The  sale  and  delivery  which 
it  directs  or  requests  could  only  be  made  "all  right"  to  the  plaintiff 
by  punctual  payment,  according  to  the  terms  of  the  sale.  And  we 
think  the  writing  imports  a  guaranty  of  such  payment.  It  was  an 
absolute  assurance  that  the  lumber  which  might  be  delivered  to  de- 
fendant's son,  at  his  request,  would  be  paid  for. 

But,  within  a  week  from  the  date  of  this  guaranty,  the  son  ob- 
tained from  the  plaintiff  lumber  to  the  value  of  $226,  on  the  faith 
of  this  guaranty,  this  being  the  full  amount  that  he  then  asked  for ; 
and  this  amount  he  has  since  fully  paid  for.  The  only  question 
arising  on  the  demurrer  to  plaintiff's  petition  is,  whether  the  guar- 
antyjn -question  is  a  continuing  one,  referable  by  its  terms  to  other 
and  subsequent  sales  of  lumber,  made  by  plaintiff  to  defendant's 
son,  or  whether  its  terms  limit  it  to  a  single  transaction. 

We  see  no  good  reason  why  contracts  of  warranty  should  not  be 
construed  by  the  rules  applicable  to  the  construction  of  contracts 
generally.  As  contracts  by  which  the  guarantor  assumes  the  posi- 
tion of  a  surety,  and  becomes  responsible  for  the  default  of  his 
principal,  there  would  seem  to  be  good  reason  for  not  holding  him 
liable  beyond  the  express  terms  of  his  agreement ;  and,  on  the  other 
hand,  there  can  be  no  good  reason  why  a  guarantor,  who  procures 
a  credit  to  be  given  which  would  have  otherwise  been  refused, 
should  not  be  held  liable  to  the  full  extent  warranted  by  the  terms 
of  the  guaranty.  In  all  written  contractSj  we  think  the  lan^ua^e.  of 
the  parties  should  be  so  construed  as  to  give  effect  to  their  clearly 
ascertained  intention.  And,  as  an  additional  rule,  we  think  it  well 
i  settled  that  all  contracts,  in  which  the  terms  are  in  any  respect 
equivocal,  should  be  read  in  the  light  of  the  circumstances  under 
which  they  are  entered  into.  This  is  to  be  done,  not  for  the  pur- 
pose of  varying  the  intention  of  the  parties,  as  disclosed  by  the 
writing,  but  of  ascertaining  what  the  parties,  in  fact,  meant  by  the 
doubtful  language  employed  for  the  expression  of  their  intention. 
The  language  of  the  guaranty  in  this  case  is,  "Please  send  my  son 
the  lumber  he  asks  for,  and  it  will  be  all  right." 

Tierg_is  no  express  limit  to  the  quantity  of  lumber  to  be   fur- 
nished.    This  is  left  to  depend  solely  on  the  pleasure  of  the  pur- 


M 


260  COMMERCIAL    GUARANTIES 

chaser.  But  it  may  well  admit  of  doubt  whether  it  contemplates 
more  than  a  single  purchase.  Its  language  is  in  the  present  tense. 
And  it  might  therefore  be  held  that  this  language  embraces  only 
such  lumber  as  the  guarantor's  son  should  ask  for,  upon  the  pre- 
sentation of  the  guaranty.  And  as  it  contains  no  express  reference 
to  future  transactions,  such,  we  think,  should  be  its  construction,  if 
read  without  regard  to  the  circumstances  under  which  it  was  written, 
or  acted  upon.  And  in  support  of  such  a  construction,  it  is  certain 
that  many  authorities,  both  English  and  American,  might  be  cited. 
In  order,  therefore,  to  extend  the  meaning  of  this  guaranty  beyond 
the  necessary  import  of  its  terms,  the  petition  under  consideration 
states  that  it  was  written  and  acted  upon  under  certain  circum- 
stances which  are  supposed  to  give  its  language  a  meaning  that  it 
,  would  not  otherwise  import.  It  is  averred  that  the  guarantor  knew 
that  his  son  was  about  engaging  in  the  lumber  business,  which  he 
expected  to  carry  on  for  several  seasons.  But  the  writing  contains 
no  reference  to  that  fact ;  and  it  is  not  averred  that  the  son  expected 
or  intended  to  make  a  series  of  purchases  of  lumber  from  the  plain- 
tiff, and  that  this  fact  was  known  to  the  father.  It  is  also  alleged 
that  the  plaintiff,  from  time  to  time,  furnished  to  the  son  the  dif- 
ferent bills  of  lumber  stated  in  their  account,  in  reliance  Upon  this 
guaranty.  But  it  is  not  alleged  that  this  fact  was,  during  this 
time,  known  to  the  father,  or  acquiesced  in  by  him.  Had  such  been 
the  fact,  it  would  be  a  practical  construction  of  his  contract,  by  the 
guarantor,  which  we  might  well  adopt  and  enforce. 

Looking,  then,  to  the  language  of  the  guaranty,  its  operative 
words  are :  "Send  my  son  the  lumber  he  asks  for,  and  it  will  be 
all  right."  This  language  clearly  imports  that  the  father  knew  that 
his  son  was  desirous  of  procuring  some  lumber  from  the  plaintiff 
upon  credit.  He  clearly  intended  to  procure  such  credit  for  his  son 
by  guaranteeing  payment  for  such  lumber  as  his  son  should  ask 
for  and  obtain  upon  the  presentation  of  the  writing  to  the  plaintiff. 
And  we  think  it  does  not  clearly  import  more  than  this.  The  guar- 
anty is  co-extensive  with  the  order  or  direction  given,  and  this  order 
was  fully  complied  with  when  the  plaintiff,  upon  its  presentation, 
sold  and  delivered  to  the  son  the  lumber  which  he  then  asked  for. 

Many  cases  might  be  cited  in  which  similar  language  has  been 
confined  in  its  interpretation  to  a  single  transaction.  Whitney  v. 
Groot,  24  Wend.  82;  Gard  v.  Stevens,  12  Mich.  292;  White  v. 
Reed,  15  Conn.  457;  Anderson  v.  Blakely,  2  W.  &  S.  237. 

On  the  other  hand,  cases  are  not  wanting  in  which  guaranties  no 
more  comprehensive  in  their  form  of  expression  have,  under  the 
circumstances  of  the  case,  been  construed  as  continuing. 

Upon  this  subject  it  has  been  well  said  that  "the  chief  difficulty 
lies  in  determining  what  interpretation  should  be  put  on  a  guaranty 
which  is  so  worded  that  it  may  either  extend  to  a  series  of  sales  or 
advances,  or  be  limited  to  the  first.     The  better  opinion  would 


i^2- 


tufa**- 

CONTINUING    GUARANTY  261 

seem  to  be,  that  such  an  instrument  should  be  confined  to/^he_jm^ 
mediate  transaction,  unless  the  language  of  the  promise  is  sum-- 
ciently  broad  to  show  that  it  was  meant  to  reach  beyond  the  pres- 
eht,~and  render  the  guarantor  answerable  for  future  credits.  The 
tendency  of  decision  in  this  country  has,  accordingly,  been  against 
construing  guaranties  as  continuing,  unless  the  intention  of  the 
parties  is  so  clearly  manifested  as  not  to  admit  of  a  reasonable 
doubt."  2  Am.  Lead.  Cas.  141,  citing  Congdon  v.  Read,  7  R.  I. 
576VGold  v.  Stevens,  12  Mich.  292;  White  v.  Reed,  15  Conn.  457; 
Whitney  v.  Groot,  24  Wend.  82;  Webb  v.  Dickerson,  11  lb.  62; 
Aldrick  v.  Higgins,  16  S.  R.  213;  Anderson  v.  Blakely,  2  W.  & 
S.  237. 

We  are  of  opinion  that  the  judgment  of  the  court  of  common 
pleas  should  be  affirmed. 

Judgment  affirmed. 

See  also  Morgan.  v^JBoyfir,  39_  Qhio  St.  324,_48  Am.  Rep.  454 ;  Merchants 
&  Farmers'  tokv.  Calmes,  82  Miss.  603,  35  So.  161;  Fellows  v.  Prentiss,  3 
Denio  (N.  Y.)  512,  45  Am.  Dec.  484;  Cutler  v.  Ballou,  136  Mass.  337,  49  Am. 

ANDREW  P.  HOTCHKISS  v.  HORACE  S.  BARNES 

34  Conn.  27,  91  Am.  Dec.  713  (1867). 

Assumpsit,  on  a  guaranty  given  by  the  defendant  for  the  pay- 
ment for  goods  sold  by  the  plaintiff  to  one  J.  L.  Day.  The  follow- 
ing facts  were  found  by  the  court: 

On  the  2d  day  of  January,  1858,  the  defendant  executed  the  fol- 
lowing writing: 

"Fair  Haven,  January  2,  1858. 
"Mr.  A.  P.  Hotchkiss : 

"Sir — You  can  let  Mr.  J.  L.  Day  have  what  goods  he  calls  for, 
and  I  will  see  that  the  same  are  settled  for.  Yours  truly, 

"H.   S.  Barnes." 

This  writing  was  immediately  thereafter  delivered  to  the  said 
Day,  who  was  the  defendant's  son-in-law,  and  by  him  to  the  plain- 
tiff, and  upon  the  faith  and  credit  thereof  the  goods  described  in 
the  bill  of  particulars  were  delivered  to  Day  between  the  2d  of 
January,  1858,  and  the  26th  day  of  July,  1859.  The  plaintiff  was  a 
merchant  engaged  in  the  wholesale  grocery  business  in  the  city  of 
New  Haven,  and  Day  was  a  druggist  in  Fair  Haven.  The  goods 
purchased  were  such  as  he  would  use  in  his  business.  The  defend- 
ant had  due  notice  of  the  acceptance  of  the  guaranty  by  the  plain- 
tiff, and  during  the  time  while  the  goods  were  being  furnished  to 
him  he  was  frequently  in  the  plaintiff's  store,  and  had  knowledge 


262  COMMERCIAL    GUARANTIES 

of  the  kind  of  goods  Day  was  purchasing,  the  extent  of  the  indebt- 
edness therefor,  and  that  the  goods  were  being  furnished  upon  the 
credit  of  the  guaranty.  Shortly  before  the  date  of  the  last  item 
in  the  bill  of  particulars  the  defendant  went  to  the  West  Indies, 
where  he  remained  until  the  next  summer,  and  until  after  the  ma- 
turity of  the  note  to  be  mentioned.  On  the  30th  day  of  March, 
1860,  and  during  the  defendant's  absence,  and  without  notice  to 
him,  the  plaintiff  in  making  up  his  account  with  Day,  as  was  his 
custom  with  all  who  traded  with  him,  balanced  the  account  and  took 
Day's  note  for  the  balance  at  three  months.  On  the  30th  of  May, 
1860,  Day,  who  up  to  that  time  had  been  carrying  on  the  druggist 
business,  disappeared  with  all  the  goods  in  his  store  and  became  ut- 
terly insolvent.  On  the  same  day  the  plaintiff  caused  to  be  left  at 
the  residence  of  the  defendant  written  notice  to  the  effect  that  Day 
had  become  insolvent  and  that  he  should  look  to  the  defendant  for 
the  payment  of  his  indebtedness  to  him ;  and  upon  the  maturity  and 
nonpayment  of  the  note,  he  caused  a  like  notice,  and  to  the  same 
effect,  to  be  left  at  the  defendant's  residence.  Shortly  after  jthe 
maturity  of  the  note,  and  upon  the  return  of  the  defendant  from 
the  West  Indies,  the  plaintiff  presented  the  note  to  him  and  he 
promised  to  pay  it.  On  the  13th  of  August,  1860,  another  demand 
was  made  upon  him  by  the  plaintiff,  in  reply  to  which  he  said  that 
it  was  all  right  and  that  he  would  pay  it  as  soon  as  he  conveniently 
could.  A  third  demand  was  made  by  the  plaintiff  on  the  6th  of 
February,  1861,  in  reply  to  which  the  defendant  said  that  he  would 
pay  it  in  cash  in  two  months  from  that  time. 

The  plaintiff  objected  to  evidence  as  to  the  giving  of  the  note  by 
Day  as  not  admissible  under  the  plea  and  notice;  also  to  all  the 
other  evidence,  so  far  as  it  was  offered  for  the  purpose  of  affecting 
the  construction  of  the  guaranty,  as  tending  to  vary  or  contradict 
a  written  instrument ;  but  the  court  admitted  the  evidence.  The  de- 
fendant also  claimed  that  the  guaranty  was  not  a  continuing  one, 
and  that  he  was  not  liable  upon  it  for  any  goods  sold  after  the 
first  sale,  which  took  place  on  the  2d  day  of  January,  1858;  also 
that  he  was  not  liable  upon  the  guaranty  for  such  part  of  the  goods 
sold  as  consisted  of  spirituous  liquors ;  but  the  court  overruled  both 
claims,  and  rendered  judgment  for  the  whole  amount  of  his  claim. 

The  defendant  moved  for  a  new  trial  for  error  in  the  rulings  of 
the  court,  and  also  filed  a  motion  in  error. 

Park,  J. :  This  suit  is  based  upon  the  following  letter  of  credit 
addressed  by  the  defendant  to  the  plaintiff: 

"Fair  Haven,  January  2,  1858. 
"Mr.  A.  P.  Hotchkiss :     . 

"Sir — You  can  let  Mr.  J.  L.  Day  have  what  goods  he  calls  for, 
and  I  will  see  that  the  same  are  settled  for.  Yours  truly, 

"H.  S.  Barnes." 


CONTINUING    GUARANTY  263 

The  first  question  in  controversy  between  the  parties  is,  whether  •• 
this  instrument  is  a  continuing  guaranty  or  whether  it  applies  only  ; 
to  the  first  item  in  the  plaintiff's  bill. 

The  books  are  full  of  reported  cases  upon  the  subject  of  com- 
mercial guaranties.  The  decisions  are  not  uniform  in  the  conclu- 
sions arrived  at,  from  the  fact  that  no  two  cases  can  be  found  pre- 
cisely alike,  and  different  courts  have  adopted  different  rules  of 
construction.  In  some  of  them  a  rigid  rule  has  been  applied  to  the 
guarantors,  while  in  others  a  construction  has  been  given  most  fa- 
vorable to  them.  It  was  well  said  by  Parke,  J.,  in  the  case  of  Har- 
greave  v.  Smee,  6  Bingham  244,  "that  all  these  cases  must  be  de- 
cided each  on  its  own  ground,  and  therefore  it  is  useless  to  refer 
to  the  decisions  except  for  any  principle  which  may  be  incidentally 
laid  down  in  them."  In  relation  to  the  rule  that  should  govern 
courts  in  construing  contracts  of  this  description,  the  weight  of 
authority,  gathered  from  all  the  cases  upon  this  subject,  is  in  con- 
formity to  the  rule  of  construction  adopted  by  our  own  court,  that 
the  contract  of  a  surety  must  be  construed  according  to  the  intent 
of  the  parties.  In  the  case  of  Hall  v.  Rand,  8  Conn.  560,  Ch.  J. 
Hosmer  says :  "The  real  inquiry  is,  what  was  the  intention  of  the 
defendant,  and  to  ascertain  this  his  words  must  be  taken  in  their 
plain,  popular  and  obvious  sense.  That  is  the  true  meaning  of  the 
contract  which  readily  presents  itself  to  a  plain  man  of  common 
understanding  on  reading  it  attentively  and  impartially,  and  not  that 
which  is  elaborated  with  effort."  In  the  case  of  Lewis  v.  Dwight, 
10  Conn.  100,  Ch.  J.  Williams  says :  "The  contract  of  a  surety 
must,  like  all  contracts,  be  construed  according  to  the  intent,  and 
the  question  is,  what  is  the  fair  import  of  the  language  of  the  guar- 
anty." In  the  case  of  White  v.  Reed,  15  Conn.  457,  Hinman,  J., 
adopts  the  same  rule  of  construction.  This  rule  may  also  be  found 
in  Hargreave  v.  Smee,  supra ;  Lee  v.  Dick,  10  Peters  482,  and  2 
Kent  Com.  557. 

Applying  this  rule  to  the  case  in  question,  would  the  fair  import 
of  the  language  used  in  this  guaranty  be  satisfied  by  the  purchase  ■ 
of  a  few  articles  of  merchandise  at  one  time?  Suppose  Day  had 
casually  passed  the  store  of  the  plaintiff  immediately  after  the 
guaranty  had  been  given,  and  recollecting  that  he  needed  an  article 
for  a  particular  purpose,  an  article  not  usually  kept  by  druggists  of 
a  limited  business,  had  procured  it,  would  the  liability  of  the  de- 
fendant be  exhausted  by  the  purchase  of  the  article? 

The  language  of  the  guaranty  is,  you  can  let  Day  have  what  goods 
he  calls  for.  There  is  no  limitation  of  the  quantity  or  kind  of  goods 
that  he  may  purchase.  There  is  no  limitation  of  the  amount  in  value 
that  the  plaintiff  may  sell.  The  language  is  general — "what  goods  he 
calls  for."  The  guaranty  shows  that  the  defendant  was  willing  to 
trust  Day  to  any  amount,  or  else  some  limitation  would  have  been 
made  in  the  amount  he  might  purchase.    Even  the  defendant's  con- 


264  COMMERCIAL    GUARANTIES 

struction  placed  it  in  the  power  of  Day  to  ruin  the  defendant  in  a 
single  transaction.  Now  it  is  unreasonable  to  suppose  that  the  de- 
fendant intended  to  limit  Day  to  a  single  purchase  of  goods  under  s 
such  circumstances.  Had  he  intended  to  limit  his  authority,  we  r 
should  look  for  a  limitation  in  the  amount  rather  than  in  the  num-  ' 
ber  of  sales.     •  ~t 

We  are  therefore  inclined  to  think  that  a  fair  construction  of  thif 
guaranty  shows  it  to  be  a  continuing  one.  But  if  we  are  wrong  in 
ihis7the"only  other  result  to  which  the  case  tends  is  equally  unfa- 
vorable to  the  defendant.  It  must  be  conceded  that  the  language 
of  this  guaranty  accords  as  well  with  sales  made  from  time  to  time 
as  it  does  with  the  first  purchase  of  goods.  Now  if  it  is  capable  of 
either  construction,  and  both  are  in  harmony  with  the  language 
used,  then  the  guaranty  possesses  a  latent  ambiguity,  and  where 
that  is  the  case  the  extrinsic  circumstances  may  always  be  shown 
in  order  to  ascertain  which  construction  the  parties  intended  the  in- 
strument to  have.  Brown  v.  Brown,  4  Conn.  269 ;  Lines  v.  Flagg, 
id.  581;  Strong  v.  Benedict,  5  id.  210;  Brown  v.  Slater,  16  id.  192; 
Baldwin  v.  Carter,  17  id.  201 ;  Peisch  v.  Dickson,  1  Mason  9 ;  The 
King  v.  Inhabitants  of  Laindon,  8  T.  R.  379;  Ely  v.  Adams,  19 
Johns.  313;  Bailey  v.  Larchar,  5  R.  I.  530;  1  Greenl.  Ev.,  p.  288; 
1  Swift  Dig.  182. 

Should  we  consider  the  guaranty  aided  by  these  circumstances, 
we  can  have  no  doubt  that  the  parties  intended  the  guaranty  to  be 
a  continuing  one. 

The  plaintiff  was  a  merchant  engaged  in  the  wholesale  grocery 
business  in  the  city  of  New  Haven  and  Day  was  a  druggist  in  the  vil- 
lage of  Fair  Haven.  The  goods  purchased  were  adapted  to  the  line 
of  business  Day  was  pursuing.  The  defendant  was  frequently  in  the 
plaintiff's  store  during  all  the  time  the  goods  were  being  delivered, 
and  had  knowledge  of  the  kind  of  goods  purchased,  and  the  amount 
thereof,  together  with  the  fact  that  they  were  furnished  upon  the 
credit  of  his  guaranty.  He  made  no  complaint  at  any  time,  and, 
after  the  indebtedness  had  fully  accrued,  promised  to  pay  the 
amount  on  three  different  occasions. 

It  is  difficult  to  see  what  could  more  satisfactorily  show  the  con- 
struction the  parties  put  upon  the  guaranty.  The  plaintiff  sold  the 
goods  upon  the  credit  of  the  guaranty.  This  shows  in  what  sense 
he  understood  the  contract.  The  defendant  knew  of  the  purchases, 
and  made  no  complaint,  and  afterward  repeatedly  promised  to  pay 
the  amount.  This  shows  that  he  regarded  the  guaranty  as  a  con- 
tinuing one. 

Both  parties  then  understood  the  contract  in  the  same  sense,  and 
such  must  be  its  construction.1     *     *     * 


1  Part  of  opinion  relating  to  illegality  omitted. 


CONTINUING    GUARANTY  2oD 

There  is  no  error  in  the  judgment  complained  of  and  no  ground 
for  a  new  trial. 

In  this  opinion  the  other  judges  concurred. 

See  also  Mason  v.  Pritchard,  2  Camp.  436;  Mayer  v.  Isaac,  6  M.  &  W.  605; 
Frost  v.  Standard  Metal  Co.,  215  111.  240,  74  N.  E.  139;  First  Nat.  Bank  v. 
Waddell,  74  Ark.  241,  85  S.  W.  417;  Mawry  v.  Waxelbaum  Co.,  108  Ga.  14, 
33  S.  E.  701 ;  Gates  v.  McKee,  13  N.  Y.  232,  64  Am.  Dec.  545. 


THE  MERCHANTS  NATIONAL  BANK  v.   COLE. 

83  Ohio  St.  50,  93  N.  E.  465,  Ann.  Cas.  1912A,  779  (1910). 

The  facts  are  stated  in  the  opinion. 

Summers,  C.  J. :  The  Merchants  National  Bank  of  Toledo,  Ohio, 
sued  the  defendant,  Louis  M.  Cole,  as  administrator  of  the  estate 
of  Lucy  A.  Cole,  to  recover  upon  the  following  guaranty : 

"March  29,  1908. 

"I  hereby  guarantee  the  payment  of  all  notes  of  F.  E.  &  G.  H. 
Cole  held  by  the  Merchants  National  Bank,  also  all  renewals  of 
same,  or  any  new  loans  made  to  either  F.  E.  or  G.  H.  Cole  by  the 
said  bank.    "  Lucy  A.  Cole." 

The  answer  of  the  defendant,  with  other  matter,  sets  up  the  fol- 
lowing : 

"That  said  guaranty  was  given  by  her  for  and  on  account  of  loans 
'already  made,  and  thereafter  to  be  made  by  said  bank  to  said  F.  E. 
and  G.  H.  Cole  for  and  on  account  of  work  being  then  done  and 
1  performed  by  them  in  the  city  of  Toledo,  Ohio,  under  contracts 
with  the  said  city  of  Toledo,  (  )hio,  and  for  no  other  purpose  what- 
soever ;  that  at  the  time  said  paper  was  executed  the  said  F.  E.  and 
G.  H.  Cole  were  engaged  in  the  work  of  paving  streets  and  build- 
ing sewers  in  the  city  of  Toledo,  under  contracts  with  the  said  city, 
andTiave  been  so  engaged  for  a  long  time  prior  thereto,  and  were, 
and  had  been  doing  business  with  said  bank,  and  had  borrowed 
money  from  said  bank  to  be  used  in  the  prosecution  of  said  work, 
and  were  at  said  date  indebted  to  said  bank  in  the  sum  of  thirteen 
thousand  two  hundred  dollars  ($13,200),  as  evidenced  by  their 
promissory  notes,  for  money  so  borrowed,  and  on  said  day  applied  to 
said  bank  for  a  further  loan,  the  proceeds  to  be  used  in  the  prose- 
cution of  said  work,  and  thereupon  the  said  bank  demanded  of 
them  that  their  mother,  the  said  Lucy  A.  Cole,  should  guaranty  the 
payment  of  said  loans,  and  thereupon  said  paper  was  prepared  by 
one  of  the  officers  of  said  bank  and  taken  to  said  Lucy  A.  Cole  by 
one  of  her  sons,  and  signed  by  her,  and  it  was  not  intended  or  con- 


266  COMMERCIAL    GUARANTIES 

templated,  either  by  said  bank  or  said  Lucy  A.  Cole,  that  such  guar- 
anty should  apply  to  any  loans  made  by  said  bank  to  said  F.  E.  and 
G.  H.  Cole,  or  either  of  them,  other  than  loans  made  for  and  on 
account  of  work  done  under  said  contracts  with  the  said  city  of 
Toledo. 

"The  said  bank  had  full  knowledge  of  the  character  of  the  work 
in  which  the  said  F.  E.  and  G.  H.  Cole  were  engaged,  and  full 
knowledge  of  the  place  or  places  where  said  work  was  being  car- 
ried on,  and  of  the  purposes  for  which  said  money  was  borrowed 
and   used. 

"The  indebtedness  from  F.  E.  and  G.  H.  Cole  to  the  bank,  exist- 
ing on  March  29,  1898,  and  all  loans  made  by  said  bank  to  said  F. 
E.  and  G.  H.  Cole,  or  either  of  them,  after  said  date,  for  or  on  ac- 
count of  said  contracts,  have  all  long  since  been  paid  in  full. 

"About  the  1st  of  January,  1901,  the  said  F.  E.  and  G.  H.  Cole 
had  substantially  completed  all  of  the  work  they  had  contracted  to 
do  in  Toledo,  under  contracts  with  the  said  city,  and  no  contracts 
were  ever  entered  into  between  them  and  the  said  city  of  Toledo 
thereafter.  All  loans  made  by  said  bank  to  said  F.  E.  and  G.  H. 
Cole,  or  either  of  them,  for  or  on  account  of  any  work  done  in  To- 
ledo, or  any  contracts  with  the  city  of  Toledo,  have  been  fully  paid. 

"In  the  summer  of  1901  the  said  F.  E.  and  G.  H.  Cole  entered 
into  a  contract  for  the  construction  of  a  tunnel,  or  a  section  thereof, 
in  Philadelphia,  Pa.,  and  in  September,  1902,  they  entered  into  a 
contract  for  tunnel  work  in  Dossett^  Tenn. 

"Defendant  further  says  that  the  bank  loaned  the  said  F.  E.  and 
G.  H.  Cole  certain  sums  of  money  for  and  on  account  of  said  last 
two  above-mentioned  contracts,  all  of  which  loans  were  evidenced 
by  promissory  notes,  and  that  whatever  notes  said  bank  now  holds 
against  the  said  F.  E.  and  G.  H.  Cole  were  given  for  moneys  bor- 
rowed by  them  on  account  of  the  said  Philadelphia  and  Dossett 
contracts. 

"The  said  bank  had  full  knowledge  of  these  contracts  and  the  na- 
ture of  the  work  being  done  under  them,  and  made  the  loans  last 
above  referred  to  with  express  reference  to  said  contracts,  and  with 
full  knowledge  that  the  money  was  being  borrowed  for  the  purpose 
of  being  used  in  the  prosecution  of  the  work  under  said  contracts, 
and  without  consultation  with  or  notice  to  said  Lucy  A.  Cole. 

"All  the  said  notes  now  held  by  said  bank  are  dated  February  15, 
1904,  and  are  all  renewal  notes,  none  of  them  having  been  given 
for  loans  made  at  the  time  they  were  executed,  but  all  given  in  lieu 
of  prior  notes.  The  last  loan  made  by  said  bank  to  said  F.  E.  and 
G.  H.  Cole,  or  either  of  them,  was  made  prior  to  July,  1903.  The 
notes  given  for  the  loans  now  represented  by  these  notes  were  from 
time  to  time  renewed,  and  the  times  of  payment  of  the  said  loans 
extended  by  said  bank  without  notice  to  the  said  Lucy  A.  Cole, 
and  without  knowledge  on  her  part. 


CONTINUING    GUARANTY 


267 


"No  demand  was  ever  made  on  said  Lucy  A.  Cole  for  payment 
of  any  part  of  the  indebtedness  of  the  said  F.  E.  and  G.  H.  Cole 
to  said  bank,  nor  was  any  notice  ever  given  her  as  to  the  amount 
or  condition  of  said  indebtedness,  nor  did  she  ever  have  any  knowl- 
edge of  any  extension  of  the  time  or  times  of  payment  of  any  part 
of  said  indebtedness,  nor  did  she  ever  have  any  knowledge  that  the 
said  F.  E.  and  G.  H.  Cole  had  borrowed  any  money  from  said  bank 
for  or  on  account  of  said  Philadelphia  or  Dossett  contracts,  or 
either  of  them,  prior,  at  least,  to  October,  1903,  and  she  had  no 
knowledge  of  the  execution  of  the  renewal  notes  now  held  by  said 
bank,   and   hereinbefore   referred  to." 

Upon  motion,  that  part  of  the  answer  was  stricken  out  and  after 
trial  a  judgment  was  entered  for  the  bank. 

The  circuit  court  reversed  the  judgment  for  error  in  sustaining 
the  motion. 

Counsel  for  the  bank  contend  that  this  guaranty  is  an  unlimited 
and  continuing  guaranty,  that  it  is  in  no  respect  equivocal  or  am- 
biguous, and  that  to  permit  proof  of  the  circumstances  set  up  by 
the  answer  would  be  to  permit  the  written  contract  to  be  modified 
by  parol  evidence. 

An_unlimited  guaranty  may  be  defined  as  one  that  is  unlimited 
both  as  to  time  and  amount,  and  a  continuing  guaranty  is  one  that 
is  not  limited  in  time  or  to  a  particular  transaction  or  to  specific 
transactions,  but  is  operative  until  revoked. 

This"  guaranty  is  not  limited  by  its  terms,  nor  is  it  by  its  terms 
continuing.  The  courts  are  not  in  accord  as  to  the  rule  to  be  ap- 
plied in  the  interpretation  of  guaranties.  In  some  cases  it  is  held 
that  a  guaranty  is  to  be  strictly  construed  in  favor  of  the  guar- 
antor, in  others  that  it  is  to  be  liberally  construed  in  favor  of  the 
creditor.  The  Hartwell  &  Richards  Co.  v.  Moss,  22  R.  I.  583.  In 
this  state  it  is  settled  that,  "A  guarantor,  like  a  surety,  is  bound 
I  only  by  the  express  terms  of  his  contract.  The  language  used  is 
J  to  be_understood  in  its  plain  and  ordinary  sense,  as  read  in  the  light 
of  the  surrounding  circumstances,  the  situation  of  the  parties,  and 
the  object  of  the  guaranty,  and  that  construction  given  which  most 
nearly  conforms  to  the  intention  of  the  parties.  If  the  language 
is  equally  capable  of  each  construction,  the  one  will  be  adopted 
which  construed  it  to  be  limited,  and  not  the  one  which  construed 
it  to  be  continuing."  Morgan  v.  Boyer,  39  Ohio  St.  '324 ;  Hall  v. 
Hall,  32  Ohio  St.  184;  The  Cambria  Iron  Co.  v.  Keynes  et  al.,'56 
Ohio  St.  501. 

But  counsel  contend  that  the  rule  adopted  in  these  cases  is  ap- 
plicable only  when  the  instrument  is  equivocal  or  ambiguous,  and 
that  here  the  fair  and  natural  meaning  of  the  words  clearly  imports 
that  the  guaranty  was  intended  to  be  continuing.  We  do  not  under- 
stand that  these  cases  except  such  instruments  from  the  general 
rule  that  parol  evidence  is  inadmissible  to  limit  or  to  enlarge  the 


268  COMMERCIAL   GUARANTIES 

terms  of  a  written  instrument,  but  that  they  hold  that  an  unlimited] 
guaranty  is  equivocal  or  ambiguous  in  respect  to  being  continuing/ 
in  the  absence  of  words  that  clearly  import  such  an  intention. 

In  such  cases  the  instrument  is  to  be  construed  in  the  light  of  the 
surrounding  circumstances,  but  this  does  not  mean,  as  some  cases 
would  seem  to  indicate,  that  the_  written  instrument  is  to  be  sup- 
planted by  a  new  contract  evolved  by  the  court  from  the  parol  evi- 
dence. Attention  should  be  given  to  what  is  meant  by  surrounding 
circumstances,  and  it  should  be  remembered  that  they  may  not  be 
used  to  contradict  or  vary  the  terms  of  the  instrument.  In  The 
Cambria  Iron  Co.  v.  Keynes  et  al.,  56  Ohio  St." 501,  it  is  held:  "In 
construing  a  contract  of  guaranty,  the  object  should  be  to  ascertain 
the  intention  of  the  parties ;  and,  as  in  construing  all  contracts,  the 
words  employed  by  the  parties  should  be  construed  in  the  light  af- 
forded by  the  circumstances  surrounding  them  at  the  time  it  was 
made."  Monnett  v.  Monnett,  Admr.,  46  Ohio  St.  30,  holds  that 
oral  testimony  is  not  admissible  to  contradict  or  vary  the  terms  of 
written  agreements,  but  is  admissible  to  prove  the  circumstances 
under  which  they  were  made,  to  enable  the  courts  to  put  themselves 
in  the  place  of  the  parties,  with  all  the  information  possessed  by 
them,  the  better  to  understand  the  terms  employed  in  the  contract, 
and  to  arrive  at  the  intention  of  the  parties,  i 

In  Morrell  v.  Cowan,  7  Ch.  Div.  (L.  R.)  151,  where  the  court 
construed  a  guaranty  reading  as  follows :  "In  consideration  of  you 
having  at  my  request  agreed  to  supply  and  furnish  goods  to  C. 
(her  husband),  I  do  hereby  guarantee  to  you  the  sum  of  £500. 
This  guarantee  is  to  continue  in  force  for  the  period  of  six  years 
and  no  longer,"  it  was  held  that  the  guaranty  was  limited  to  goods 
actually  supplied  to  the  husband  after  it  was  given.  Thesiger,  L.  J., 
in  his  opinion  says :  "I  agree  that  in  determining  the  construction 
of  this  instrument  the  court  is  entitled  to  look  at  the  surrounding 
circumstances ;  that  is  to  say,  it  is  entitled  to  consider,  first,  who 
the  parties  were ;  secondly,  in  what  position  they  were ;  and,  thirdly, 
what  the  subject-matter  of  the  agreement  was.  Now  we  find  that 
Morrell  was  a  leather  factor,  and  that  Cowan  was  a  shoe  manufac- 
turer, and  was  indebted  to  him  for  certain  goods  supplied  to  him 
in  the  way  of  trade.  Cowan  was  anxious  to  get  a  further  supply, 
which  Morrell  was  willing  to  furnish  if  he  had  a  guaranty  from 
Mrs.  Cowan,  who  had  separate  estate.  To  these  circumstances  we 
may  look,  but  we  can  not  go  further.  It  is  not  open  to  the  parties 
to  show  that  there  was  a  parol  bargain  that  Mrs.  Cowan  should 
guarantee  her  husband's  past  debts,  or  that  the  guarantee  should 
be  confined  to  future  debts ;  that  question  must  rest  upon  the  writ- 
ten instrument  alone." 

It  follows  that  the  court  of  common  pleas  erred  in  not  permitting 


GUARANTY   OF    COLLECTIBILITY  269 

a  statement  of  any  of  the  surrounding  circumstances  that  the  cir- 
cuit court  was  not  in  error  in  reversing  the  judgment  on  that  ground. 

Judgment  affirmed. 

Crew,  Spear,  Davis  and  Price,  JJ.,  concur. 

But  see  McShane  Co.  v.  Padian,  142  N.  Y.  207,  36  N.  E.  880. 
Limitation  as  to  Amount. 

"If  a  bond  is  given  by  a  surety  to  secure  the  repayment  of  advances  of 
money  to  the  principal,  provided  such  advances  do  not  exceed  on  the  whole  at 
any  one  time  a  certain  limited  amount,  the  proviso  protects  the  surety  from 
being  answerable  beyond  the  amount  named,  but  does  not  render  the  obliga- 
tion void  if  the  advances  go  beyond  it,  unless  that  clearly  appears  to  have 
been  the  intention  of  the  parties."  Bank  of  New  Zealand  v.  Wilson,  5  N.  Z. 
215 ;  Parker  v.  Wise,  6  M.  &  S.  239 ;  Laurie  v.  Scholefield,  L.  R.  4  C.  P.  622 ; 
Fisk  v.  Stone,  6  Dak.  35,  50  N.  W.  125;  Curtis  v.  Hubbard,  6  Mete.  (Mass.) 
186 ;  Tolerton  &  Stetson  Co.  v.  Barck,  81  Minn.  470,  84  N.  W.  330 ;  Clagett  v. 
Salmon,  5  Gill  &  J.  (Md.)  314;  Sheppard  v.  Daniel  Miller  Co.,  7  Ga.  App. 
760,  68  S.  E.  451. 

Contra:  Bloomington  Mining  Co.  v.  Searles,  63  N.  J.  L.  47,  42  Atl.  840; 
Ryan  v.  Trustees,  14  111.  20;  Farmers  &  Mechanics'  Bank  v.  Evans,  4  Barb. 
(N.  Y.)  487. 



SECTION  7.    GUARANTY  OF  COLLECTIBILITY 


W.  J.  EVANS  v.  W.  H.  BELL, 
45  Tex.  553  (1876). 


Bell  sued  Evans  on  a  promissory  note,  and  to  enforce  the  ven- 
dor's lien  on  lands  for  which  the  note  was  executed,  of  date  De- 
cember 13,  1871,  and  due  in  twelve  months. 

Evans  pleaded  in  set-off  a  note  executed  July  7,  1871,  to  Bell, 
and  by  him  indorsed  by  writing  at  the  bottom  of  the  note  his  guar- 
anty, as  follows:  "I,  W.  H.  Bell,  do  herein  agree,  that  if  the 
bearer  fails  to  collect  the  above  amount  by  1st  of  April,  that  I  will 
be  responsible  for  it. 

"(Signed)  W.  H.  Bell." 

On  the  trial  the  note  pleaded  in  set-off  was  excluded.  Judgment 
was  rendered  for  plaintiff  for  the  amount  claimed  by  him.  The  de- 
fendant Evans  appealed,  assigning  as  error  the  ruling  of  the  court 
in  excluding  his  testimony. 

Moore,  Associate  Justice:  The  only  error  assigned  for  the 
reversal  of  the  judgment  in  this  case  is,  the  ruling  of  the  court 
excluding  from  the  jury  the  instrument  described  in  the  answer, 
and  pleaded  as  an  offset  to  appellee's  action. 

It  is  not  pretended  that  this  instrument  has  any  connection  what- 
ever with  the  demand  upon  which  the  action  is  brought.     The  an-  •  ' 
swer  setting  it  up  must  therefore  be  regarded  as  in  the  nature  of  a 


\ 


270  COMMERCIAL    GUARANTIES 

cross-action,  and  should  contain  such  allegations  as  would  entitle 
the  defendant  to  a  judgment  if  he  was  prosecuting  a  suit  on  it  as 
plaintiff.  (Waterman  on  Set-off,  p.  45,  §  40,  and  p.  89,  §  73.) 
It  is  a  familiar  rule,  that  where  a  party  wholly  fails  by  his  peti- 
tion or  answer  to  state  a  cause  of  action  or  ground  of  defense,  he 
has  no  occasion  to  complain  because  the  court  has  excluded  evidence 
tending  to  prove  the  matters  alleged  in  his  petition  or  answer.  The 
answer  in  this  case  is  framed  upon  the  hypothesis  of  appellee's  im- 
mediate and  unconditional  liability  for  the  payment  of  the  note 
herein  described,  if  not  paid  by  the  time  mentioned  in  his  transfer 
of  it,  written  immediately  beneath  the  signature  of  the  maker.  The 
controversy,  therefore,  in  this  case  turns  upon  the  legal  effect  of  this 
transfer,  and  whether  it  in  fact  imports  an  absolute  and  direct,  or 
a  collateral  undertaking  on  the  part  of  appellee. 
•  There  seems  considerable  conflict  between  the  decisions  of  the 
courts  of  different  states  in  construing  contracts  and  agreements 
such  as  that  here  in  question.  It  is  not  necessary,  however,  on  the 
present  occasion,  to  determine  whether  the  appellee  became  a  mere 
indorser  of  the  note,  with  a  qualification  of  his  liability  as  indorser 
in  point  of  time,  as  he  insists,  or,  as  appellants  maintain,  his  under- 
taking is  that  of  guarantor.  For,  conceding  that  it  is  the  latter,  it 
must  be  admitted  that  there  is  a  plain  and  broad  distinction  between 
the  guaranty  of  the  payment  of  a  note  or  bill,  and  the  guaranty  of 
its  collection.  The  guarantor  in  the  latter  case  is  not  liable  to  an 
action  on  the  mere  failure  of  the  debtor  to  pay  the  note  when  due, 
for  he  merely  stipulates  thereby  that  the  note  is  collectible  in  due 
course  of  law  by  use  of  reasonable  diligence.  An  undertaking  in- 
dorsed upon  the  note  by  the  payee  in  these  terms,  "I  warrant  this 
note  good,"  was  held  by  the  Supreme  Court  of  New  York  to  be  a 
guaranty  that  the  note  was  collectable,  and  not  that  it  would  be 
paid  on  demand.  And  in  order  to  charge  the  guarantor  it  was  held 
necessary  to  show  that  payment  could  not  be  enforced  against  the 
maker.  _  (Curtis  v.  Smallman,  14  Wend.  231.)  And  when  the! 
stipulation  was,  "I  guarantee  the  collection  of  this  note,"  it  was  de-/ 
cided  that  the  guarantor  was  not  liable  until  after  the  holder  hadjV. 
endeavored  to  collect  the  money  from  the  maker.  It_was_equiy.-|  /•• 
alent,  say  the  court,  to  a  guarantee  that  the  note  was~coIlectable  by 
due-€ourse_of  law.  (Cumpston  v.  McNair,  1  Wend.  457;  see  also 
Day  v.  Elmere,  4"  Wis.  190;  Hart  v.  Hudson,  6  Duer.  294;  Love- 
land  v.  Shephard,  2  Hill  139.)  And  where  the  payee  transferred 
the  note  with  this  indorsement,  "I  hereby  guarantee  this  note  good 
until  January  1,  1850,"  the  Supreme  Court  of  Vermont  held  that 
the  contract  of  the  defendant  was  collateral  and  not  absolute;  that 
by  thisguaranty  the  defendant  agreed  that  during  the  period  men- 
tioned in  the  guaranty  the  maker  of  the  note  should  be  in  that  con- 
dition that  its  payment  could  be  enforced  if  legal  diligence  should 
be  used  for  its  collection.    And  to  maintain  an  action  on  this  guar- 


GUARANTY    OF    COLLECTIBILITY  271 

. 

anty,  it  was  held  that  it  was  necessary  to  aver  that  the  maker  was 
not  before,  nor  on  the  day  mentioned  in  the  guaranty,  good  or  re- 
sponsible for  the  note,  but  on  the  contrary  that  it  was  uncollectable 
from  the  maker.  (Hammond  v.  Chamberland,  26  Vt.  406.)  In_ 
this  case  appellee  agreed  to  be  responsible  for  the  note,  "if  the  bearer 
fails  to  collect  it,"  not  on  the  day  it  became  due,  but  by  the  first  of 
April  thereafter jjjy  which  time  it  evidently  is  possible  that  it  might 
have  been  collected  by  the  prompt  and  diligent  use  of  legal  process. 
Unquestionably,  appellant's  undertaking  of  responsibility  was  not 
unconditional,  but  was  dependent  on  some  effort  to  collect.  It  is 
equally  unquestionable  that  this  effort  could  only  have  been  made 
by  the  bearer  of  the  note.  But  no  effort  whatever  is  alleged  in  the 
/answer_io_Jiave  been_made  for  its  collection.  Appellee's  liability  is 
rHbi^upon  the  bare~facT~That  the  note  was  unpaid.  This,  as  we 
have  seen,  is  insufficient.  The  introduction  of  the  note,  which  is  all 
the  evidence  for  which  a  predicate  was  laid  in  the  answer,  was  not 
sufficient  to  establish  appellee's  liability  for  its  payment ;  and  appel- 
lant could  therefore  have  suffered  no  injury  from  its  exclusion. 
The  judgment  is  affirmed. 
Affirmed. 


Accord:    Cowles  v.  Peck,  55  Conn.  251,  10  Atl.  569,  3  Am.  St.  44;  Jones  v. 
Ashford,  79  N.  Car.  172. 


ALFRED  W.  McMURRAY  ET  AL.,  EXECUTORS,  v. 
STEPHEN  R.  NOYES    * 

72  N.  Y.  523,  28  Am.  Rep..  180  (1878).  ' 

Rapallo,  J. :  The  guaranty  on  which  this  action  is  brought  is 
contained  in  an  assignment  of  a  bond  and  mortgage,  and  is  in  the 
following  form: 

"I  hereby  covenant  *  *  *  that  in  case  of  foreclosure  and 
sale  of  the  mortgaged  premises  described  in  said  mortgage,  if  the 
proceeds  of  such  sale  shall  be  insufficient  to  satisfy  the  same,  with 
the  costs  of  foreclosure,  I  will  pay  the  amount  of  such  deficiency 
to  the  said  party  of  the  second  part,  or  its  assigns,  on  demand." 

On  the  part  of  the  appellants,  it  is  contended  that  this  guaranty 
is  subject  to  the  rules  applicable  to  guaranties  of  collection,  and  thus 
laches  in  foreclosing  the  mortgage,  after  default,  is  a  defense.  The 
respondents  insist  that  it  is  a  guaranty  of  payment,  and  that  they 
were  under  no  obligation  to  use  diligence  in  endeavoring  to  collect 
the  mortgage  debt  by  foreclosure. 

The  fundamental  distinction  between  a  guaranty  of  payment  and 
\one  of  collection  is,  that  in  the  first  case  the  guarantor  undertakes 
unconditionally  that  the  debtor  will  pay  and  the  creditor  may,  upon 

i fault,  proceed  directly  against  the  guarantor,  without  taking  any 


272  COMMERCIAL    GUARANTIES 

steps  to  collect  of  the  principal  debtor,  and  the  omission  or  neglect 
to  proceed  against  him  is  not  (except  under  special  circumstances) 
any  defense  to  the  guarantor;  while  in  the  second  case  the  under- 
taking is  that  if  the  demand  can  not  be  collected  by  legal  proceed- 
ings the  guarantor  will  pay,  and  consequently  legal  proceedings 
against  the  principal  debtor,  and  a  failure  to  collect  of  him  by  those 
means  are  conditions  precedent  to  the  liability  of  the  guarantor; 
and  to  these  the  law,  as  established  by  numerous  decisions,  attaches 
the  further  condition  that  due  diligence  be  exercised  by  the  creditor 
in  enforcing  his  legal  remedies  against  the  debtor. 

These  rules  are  well  settled,  and  are  not  controverted,  and  the 
only  question  is  to  which  class  of  guaranties  the  one  now  before  us 
belongs. 

It  is  apparent  upon  the  face  of  the  instrument  that  the  undertak- 
ing of  the  defendant  was  not  an  unconditional  one  that  the  mort- 
gagor should  pay,  or  that  the  guarantor  would  pay  on  default  of 
the  mortgagor,  but  only  that  the  guarantor  would  pay,  in  case  of  a 
deficiency  arising  on  a  foreclosure  and  sale.  The  foreclosure  and 
sale  were  consequently  conditions  precedent,  and  the  general  prin- 
ciple is,  that  wherever  a^condition  precedent  is  to  be  performed 
for  the  purpose  of  establishing  the  liability  of  a  surety  or  guarantor, 
such  condition  must  be  performed  in  good  faith  and  with  due  dili- 
gence. It  is  upon  this  principle  that,  in  case  of  a  guaranty  of  col- 
lection diligence  is  required  of  the  creditor. 

I  am  unable  to  see  why  this  principle  is  not  applicable  to  the  guar- 
anty now  in  controversy.  The  respondents  claim  that  it  is  an  un- 
dertaking to  pay  any  deficiency  which  may  arise,  and  is,  therefore, 
a  guaranty  of  payment  of  the  mortgage  debt  to  that  extent,  and  to 
be  governed  by  the  same  rules  as  if  it  had  been  a  guaranty  of  pay- 
ment of  the  whole  mortgage.  But  the  fallacy  of  this  reasoning  is 
that  it  is  not  an  unconditional  guaranty  that  the  mortgagor  will  pay 
the  mortgage  debt,  or  any  part  of  it,  but  only  that  after  the  remedy 
against  the  land  has  been  exhausted,  and  the  deficiency  ascertained 
by  foreclosure  and  sale,  the  guarantor  will  pay  such  deficiency. 
The  only  difference  between  this  and  an  ordinary  guaranty  of  col- 
lection is  that  in  the  latter  case  the  undertaking  is  that  after  it  has 
been  ascertained  by  all  such  legal  proceedings  as  the  case  admits 
of  that  the  demand  can  not  be  collected,  the  guarantor  will  pay; 
while  in  the  present  case  the  only  proceedings  which  the  creditor 
is  bound  to  adopt  are  a  foreclosure  of  the  mortgage  and  sale  of  the 
mortgaged  lands.  To  that  extent  the  condition  precedent  exists 
alike  in  both  cases,  and  the  duty  of  exorcising  clue  diligence  attaches, 
there  being  nothing  in  the  instrument  qualifying  or  dispensing 
with  it. 

The  case  of  Goldsmith  v.  Brown,  35  Barb.  484,  is  relied  upon  by 
the  respondents  as  sustaining  their  position.  In  that  case  the  cove- 
nant was,  as  construed  by  the  court,  to  pay  the  deficiency  upon  the 


GUARANTY    OF    COLLECTIBILITY  273 

mortgage  debt  whenever  the  remedy  against  the  lands  mortgaged 
should  have  been  exhausted  and  the  deficiency  ascertained.  The  de- 
cision in  that  case  can  only  be  sustained  by  construing  the  covenant 
as  waiving  diligence  in  foreclosing,  and  binding  the  covenantor  to 
pay  the  deficiency  without  regard  to  the  time  of  the  foreclosure. 
Nothing  in  the  covenant  now  under  examination  has  any  relation 
to  the  time  of  the  foreclosure,  or  can  be  construed  as  waiving  the 
diligence  required  by  the  general  rules  of  law  in  performing  the 
condition. 

The  delay  in  foreclosing  in  the  present  case  was  fourteen  months 
[after  the  mortgage  debt  became  due.  During  upward  of  this  time 
the~property  was  a  sufficient  security,  but  afterward  the  buildings 
thereon  were  destroyed  by  fire,  and  the  value  was  reduced  below 
the  amount  of  the  mortgage  debt.  It  canjiot  be  questioned  that  this 
delay  was  sufficient  to  constitute  laches.  In  Craig  v.  Parkis  (40 
N.  Y.  181),  a  delay  of  six  months  in  foreclosing  a  bond  and  mort- 
gage was  held  to  be  laches  which  discharged  a  guaranty  of  its  col- 
lection. 

The  judgment  should  be  reversed,  and  a  new  trial  ordered,  with 
costs  to  abide  the  event. 

Judgment  reversed. 

All  concur. 


JOHN   CRAIG,   APPELLANT,   v.   JAMES   PARKIS, 
RESPONDENT 

40  N.  V.  181,  100  Am.  Dec.  469  (1869). 

The  action  was  upon  a  guaranty. 

August  18,  1857,  Frederick  Root  executed  his  bond,  and  a  mort- 
gage, on  land  in  Badaxe  county,  Wisconsin,  to  Willard  Herrick, 
to  secure  the  sum  of  $300  and  interest,  in  three  equal  amounts,  an- 
nually. 

The  first  payment  November  1,  1858. 

The  second  payment  to  be  made  November  1,  1859. 

The  third  payment  November  1,  1860. 

On  the  24th  of  August,  1857,  E.  H.  Burgess,  by  a  writing,  in- 
dorsed on  the  bond,  guaranteed  the  payment  of  the  bond  and  mort- 
gage, On  the  same  day,  Willard  Hernck  assigned  me  bond  and 
mortgage  to  the  defendant,  James  Parkis,  and  guaranteed  their  pay- 
ment. JH^a  writing,  indorsed  on  the  bond.  August  28,  T857,  James 
5ar¥^the  defendant,  assigned  the  bond  and  mortgage,  andguar^- 


an|p£id  the  collection  of  the  same  to  Orson  Tousley,  by  the  folio  w- 
mg  writing,  indorsed  on  the  mortgage :  _ 

"For  value  received,  I  hereby  sell,  assign,  and  set  over  to  Orson/ 
18— De  Witt. 


274  COMMERCIAL    GUARANTIES 

Tousley,  all  my  right,  title,  and  interest  to  the  within  mortgage, 
and  the  bond  accompanying  the  same,  and  hereby  guaranty  the  col- 
lection of  the  within  amount,  as  it  becomes  due,  waiving  all  notice. 
Dated  Albion,  August  28,  1857.         (Signed)        James  Parkis."  _J 

This  action  was  commenced  upon  this  last  guaranty.  On  the 
3d  of  January,  1859,  Orson  Tousley  assigned  the  said  bond  and 
mortgage  to  A.  J.  Cady,  and,  on  the  1st  of  January,  1859,  Cady 
assigned  the  same  to  the  plaintiff,  neither  assignment  in  terms  car- 
rying with  it  the  defendant's  guaranty.  April  5,  1859,  an  action 
was  commenced  against  Willard  Herrick,  upon  his  guaranty,  and 
judgment  recovered,  for  penalty  in  the  bond,  execution  to  collect 
$141.19,  which  was  returned  unsatisfied.  No  execution  has  since 
been  issued. 

On  the  15th  day  of  November,  1859,  action  was  commenced  to 
foreclose  said  mortgage.  Judgment  was  obtained  May,  1860,  for 
$254.46,  and  $30.95  costs.  It  appeared,  by  the  record,  that  personal 
service  was  not  made  on  Frederick  Root.  The  premises  were  sold 
October  1,  1860,  for  $28.90;  the  fees  and  expenses  of  sale  were 
$27.90;  and  the  deficiency  on  the  sale  was  $291.42,  for  which  exe- 
cution was  issued  in  Wisconsin,  and  returned  unsatisfied.  Fred- 
erick Root  resided  in  Orleans  county,  New  York.  _^» 

May  13,  1861,  an  action  was  commenced  against  Frederick  Root,( 
upon  said  bond.  Judgment  recovered  July  6,  1861.  Execution  is- 
sued and  returned  unsatisfied,  May  4,  1861.  Action  commenced 
against  E.  H.  Burgess  upon  his  guaranty  judgment  recovered  July 
6,  1861,  and  execution  issued  and  returned  unsatisfied.  To  excuse 
the  delay  in  prosecuting  the  foregoing  obligation,  the  plaintiff,  be- 
fore resting  his  case,  offered  to  prove  that  Root,  Herrick  and  Bur- 
gess were,  and  had  been,  since  the  first  payment  became  due,  ut- 
terly and  hopelessly  insolvent,  and  that  nothing  could  have  been 
collected.of  them,  by  proceedings  at  law.  This  was  objected  to,  the 
objection  sustained,  the  evidence  excluded,  and  the  plaintiff  ex- 
cepted. -J 

The  plaintiff  was  nonsuited. 

Lott,  J. :  The  defendant,  by  assignment,  bearing  date  the  28th 
day  of  August,  1857,  assigned  to  Orson  Tousley  a  mortgage  on 
real  estate,  in  the  state  of  Wisconsin,  and  the  bond  accompanying 
the  same,  executed  by  Frederick  Root  to  Willard  Herrick,  and 
guaranteed  the  collection  of  the  amount,  secured  thereby,  as  it  be- 
came due,  waiving  all  notice. 

The  bond  and  mortgage  bear  date  the  18th  day  of  August,  1857, 
and  were  given  to  secure  the  payment  of  the  sum  of  three  hundred 
dollars,  with  interest,  in  three  equal  annual  payments  of  one  hun- 
dred dollars  each,  with  interest ;  the  first  of  which  was  to  be  made 
on  the  1st  day  of  November,  1858.  Indorsed  on  the  bond  was  a 
guaranty  by  G.  H.  Burgess,  dated  August  24,  1857,  guaranteeing 


GUARANTY    OF    COLLECTIBILITY  275 

v 

the  payment  thereof ,  and  the  said  Willard  Herrick,  by  an  assign- 
ment of  the  last  mentioned  date,  assigned  the  bond  and  mortgage  to 
James  Parkis,  the  defendant,  or  bearer,  and  also  guaranteed  the 
payment  thereof.  The  said  bond  and  mortgage,  and  all  the  right 
of  Tousley  in  them,  were  afterward  assigned  by  him,  on  the  3d 
day  of  January,  1859,  to  A.  L.  Cady,  and  he  assigned  them,  and  all 
money  due  and  to  grow  due  thereon,  as  collateral  security  for  a  debt 
due  from  him  to  the  plaintiff,  by  assignment  dated  February  1,  of 
the  same  year. 

On  the  fifth  day  of  April  following,  the  plaintiff  commenced  an 
action  in  the  Supreme  Court  of  this  state  against  Herrick,  on  his 
guaranty,  which  was  duly  prosecuted  to  judgment,  and  an  execu- 
tion issued  thereon,  was  returned  wholly  unsatisfied. 

Subsequent  to  the  return  of  the  execution,  and  on  the  15th  day 
of  November,  1859,  a  suit  for  the  foreclosure  of  the  mortgage  was 
commenced  in  the  circuit  court  of  the  state  of  Wisconsin  against 
Frederick  Root,  in  which  a  decree  for  the  sale  of  the  mortgaged 
premises  and  for  the  payment  of  any  deficiency  was  entered,  on 
the  10th  day  of  May,  1860. 

The  property  was  sold  on  the  1st  day  of  October,  I860,  and  the 
Sum  of  one  dollar,  over  and  above  the  costs,  was  realized  from  such 
sale  and  credited  on  the  decree. 

An  execution  for  the  collection  of  the  deficiency  was  issued,  on 
the  4th  day  of  December,  1860,  and  afterward  returned  wholly 
unsatisfied.  On  the  4th  day  of  May,  1861,  an  action  was  com- 
menced by  the  plaintiff,  in  the  Supreme  Court  of  this  state,  against 
the  said  Burgess,  on  his  guaranty,  in  which  judgment  was  rendered 
on  the  6th  day  of  July  thereafter,  for  the  whole  amount  payable  on 
the  said  bond,  and  on  the  1 3th  day  of  the  month  of  .May,  an  action 
was  commenced  by  the  plaintiff,  in  the  Supreme  Court  of  this  state, 
against  Frederick  Root,  the  mortgagor,  in  which  judgment  was  also 
recovered,  on  the  said  6th  day  of  July,  for  the  whole  amount  due. 
Executions  on  both  of  the  last  mentioned  judgments  were  issued 
on  the  9th  of  the  month,  and  were  each  returned  wholly  unsatis- 
fied, before  the  commencement  of  the  present  action. 

After  these  facts  were  proven,  the  plaintiff  offered  to  prove  that, 
at  the  time  the  first  instalment  of  the  bond  became  due,  November 
1,  1858,  the  said  Frederick  Root,  William  Herrick  and  E.  H.  Bur- 
gess were  and  have  ever  since  been,  each  of  them,  entirely  and  hope- 
lessly insolvent,  and  that  nothing  could  have  been  collected  of  them, 
by  proceedings  at  law  then  or  since. 

The  court  excluded  that  evidence,  and  then,  no  further  evidence 
being  introduced,  a  nonsuit  was  ordered. 

The  motion  for  the  nonsuit  was  based  on  three  grounds :_ 
1.    That  the  proofs  did  not  show  the  guaranty  in  the  suit  to  be 
owned  by  the  plaintiff. 


276  COMMERCIAL    GUARANTIES 

v  .  -J 

2.  That  it  did  not  appear  that  the  plaintiff  had  used  due  and 
proper  diligence,  in  the  prosecution  of  the  principal  debtor,  and  the/ 
several  guarantors. 

3.  That  there  were  not  sufficient  facts  stated  in  the  complaint 
to  constitute  a  cause  of  action. 

The  first  ground  for  the  nonsuit  will  be  first  considered.  Al- 
though the  guaranty  of  the  defendant  was  not,  in  terms,  assigned 
to  the  plaintiff,  he  became  entitled  to  the  benefit  of  it,  under  the 
assignment  of  the  bond,  and  the  money  secured  thereby.  The  trans- 
fer of  the  debt  to  him  carried  with  it,  as  an  incident,  all  the  securi- 
ties for  its  payment.  He,  therefore,  had  a  right  to  maintain  the 
action. 

The  exception  to  the  exclusion  of  the  evidence  offered,  and  the 
other  grounds  of  the  motion  for  a  nonsuit,  present,  substantially, 
the  same  question,  and  that  involves  the  construction  of  the  de- 
fendant's contract. 

He  guaranteed  the  collection,  and  not  the  payment,  of  the  amount  j 
secured  by  the  bond  and  mortgage,  when  it  became  due. 

The  mere  fact  of  its  nonpayment,  at  that  time,  was,  therefore, 
not  sufficient  to  give  the  plaintiff  the  right  of  action.  He  was 
bound  to  take  proper  measures  to  collect  the  debt,  within  a  reasona- 
ble time  after  the  whole  of  it  became  payable,  conceding,  for  the 
present,  that  such  duty  did  not  arise  on  the  previous  defaults. 

His  obligation  will  be  first  considered,  on  the  assumption  that  all 
of  the  parties  liable  were  then  able  to  pay,  and  that  such  liability 
continued   for  six  months  thereafter. 

The  last  instalment  became  payable  on  the  1st  day  of  November, 
1860,  and  legal  proceedings  could  have  been  immediately  taken 
against  Root  the  obligor,  on  his  bond,  and  against  Burgess  and  Her- 
rick,  the  previous  guarantors,  on  their  guaranty  of  payment.  None 
were,  however,  taken,  until  in  May,  1861,  and  then  only  against 
Root  and  Burgess. 

A  judgment  had  previously  been  recovered  against  HerricK  ior 
the  penalty  of  the  bond,  after  default  was  made  in  the  payment  of 
the  first  instalment,  and  assuming  that  no  further  suit  against  him 
was  necessary,  that  did  not  dispense  with  the  necessity  of  issuing 
an  execution,  after  the  other  instalments  became  payable. 

It  also  appears,  by  the  case,  that  all  of  the  debtors,  at  the  time  of 
the  recovery  of  the  judgment,  and  the  issuing  of  the  executions 
against  them,  resided  in  this  state,  and  there  is  nothing  to  show 
that  either  of  them  was,  at  any  time,  a  nonresident,  or  that  a  suit 
could  not  have  been  commenced  against  them, ,  by  a  personal  service 
of  the  summons.  A  delay  for  upward  of  six  months  was,  under  the 
assumption  of  the  solvency  of  the  parties,  not  the  exercise  of  proper 
and  due  diligence. 

Does  their  insolvency  excuse  that  delay?  "1 

I  see  no  principle  upon  which  that  can  be  claimed.  J 


GUARANTY    OF    COLLECTIBILITY 


277 


WherL-a-Cfeditoi^agrees  with  a  surety  for  his  debtor,  that  he  will 
commence  a  suit  against  such  debtor  within  a  reasonable  time  after 
thereto  falls  due,  and,  in  default  thereof,  that  the  surety  shall  be 
released,  it  is  a  condition  precedent  to  his  right  cf  action  against 
the  guarantor,  that  such  suit  shall  not  only  be  so  commenced,  but 
that  it  shall  be  carried  to  consummation. 

■"-^Ffielffaintiltjiadjio^  his  own  responsibility, 

whether  the  debt  was  collectible.  ~That  was  a  question  which  the 
defendant  had  made  it  incumbent  on  him  to  ascertain,  by  recourse 
to  the  ordinary  rules  provided  by  the  law  for  the  collection  of 
debts. 

If  the  debtor's  insolvency  is  an  excuse  for  the  delay,  at  all,  there 
is  no  reason  why  it  should  not  be  such,  as  long  as  the  insolvency 
continues,  and  thus  the  liability  of  the  surety  would  be,  for  an  in- 
definite period,  controlled  by  the  opinion  of  witnesses  as  to  the 
ability  of  the  principal  to  pay  the  debt,  and  not  by  the  standard, 
or  means,  fixed  by  the  parties  themselves,  for  ascertaining  that  fact. 
These  views  lead  us  to  the  conclusion  that  the  orpof  of  the 
debtor's  insolvency  was  properly  rejected. 

It  follows,  therefore,  that  the  nonsuit  was  proper,  and  that  the 
/judgment  should  be  affirmed,  with  costs. 

I  Mason,  J.  (dissenting)":  There  has  been  a  very  great  deal  of 
discussion,  in  the  courts  of  this  country,  as  to  the  legal  construction 
of  such  a  guaranty  as  this.  The  real  difference  of  opinion  has  been 
as  to  what  was  implied  in  such  a  guaranty.  All  agree  that,  unless 
the  terms  of  the  guaranty  imply  that  the  liability  of  the  guarantor 
depends  upon  the  failure  to  obtain  payment  of  the  principal,  by  pro- 
ceedings at  law,  such  proceedings  are  not  a  condition  precedent. 
In  most  states  it  has  been  regarded  as  an  undertaking  to  pay,  if 
recompense  could  not  be  obtained  of  the  principal  debtor ;  and  that, 
where  clear  proof  of  the  principal  debtor's  insolvency  could  be 
niaTle,  no  suit  against  him  was  required.  The  following  cases  will 
be  founT!o~TToTaK"TKTs :  McDoal  v.  Yeomans,  8  Watts  R.  361 ;  Mc- 
Clurg  v.  Fryer,  15  Pa.  St.  R.,  3  Harris  293 ;  Bull  v.  Bliss,  30  Vt.  R. 
127;  Dana  v.  Conarft,  id.  246;  Perkins  v.  Catlin,  11  Conn.  R.  213; 
Ranson  v.  Sherwood,  26  Conn.  R.  437;  Sanford  v.  Allen,  1  Cush. 
473;  Gillighan  v.  Boardman,  29  Maine  R.,  16  Shep.  79;  Thompson 
v.  Armstrong,  1  Breese  111.  R.  23  ;  Wren  v.  Pierce,  4  Sm.  &  M.  91 ; 
2  Appl.  R.  28.1    The  rule  with  us  seems  to  be  different. 

The  rule  to  be  deduced  from  the  adjudged  cases  in  this  state  is 
that  such  a  guaranty  is  an  undertaking,  that  the  demand  is  collecti- 
ble, by  due  course  of  law,  and  that  the  guarantor  only  undertakes 
to  pay,  when  it  is  ascertained  that  it  can  not  be  collected  by  suit, 
prosecuted  to  judgment  and  execution  against  the  principal;  and 

i  See  also  Colby  v.  Farwell,  71  N.  H.  83,  51  Atl.  254;  Stone  v.  Rockefeller, 
29  Ohio  St.  625 ;  Dillman  v.  Nadelhoffer,  160  111.  121,  43  N.  E.  378. 


278  COMMERCIAL    GUARANTIES 

that  the  endeavor  to  collect  of  the  principal,  by  due  course  of  law, 
is  a  condition  precedent  to  the  right  of  action  against  the  guarantor. 
(Moakley  v.  Riggs,  19  J.  R.  69;  White  v.  Case,  13  W.  R.  543; 
Eddy  v.  Stantor,  21  W.  R.  255;  Taylor  v.  Bullen,  6  Cow.  R.  624; 
Burt  v.  Fowler,  5  Barb.  R.  501 ;  Loveland  v.  Shepherd,  2  Hill  R. 
139;  Manning  v.  Haight,  14  Barb.  R.  76;  Newell  v.  Fowler,  23 
Barb.  R.  628 ;  Van  Derveer  v.  Wright,  6  Barb.  R.  547 ;  Gallagher  v. 
White,  31  Barb.  R.  92;  Cady  v.  Sheldon,  38  Barb.  R.  102.)  It  must 
be  admitted,  also,  that  the  decided  weight  of  authority,  in  the  Su- 
preme Court  of  this  state,  is,  that  a  still  further  condition  is  implied 
in  such  a  guaranty,  and  which  is,  that  due  diligence  must  be  used 
in  bringing  the  suit  against  the  principal,  and  in  prosecuting  the 
same  to  judgment  and  execution ;  and  that  any  laches  in  this  re- 
spect will  discharge  the  surety.     (See  cases  above  cited.) 

I  can  not  find  that  this  question  has  ever  been  passed  upon  in 
this  court,  or  in  the  late  court  of  errors.  But,  as  a  general  rule, 
its  soundness  can  not  be  doubted,  I  think,  and  it  seems  unques- 
tioned from  the  adjudged  cases.  The  rule,  which  requires  the 
creditor,  in  such  case,  to  use  due  diligence  to  collect  the  debt  of  the 
principal,  is  just  and  reasonable,  and  should  be  enforced,  as  well 
for  its  reasonableness  as  for  the  unbroken  current  of  authority 
with  which  it  is  supported.  The  rule  is  not,  however,  in  my  judg- 
ment, inflexible.  It  is  like  most  general  rules ;  it  has  its  exceptions. 
It  can  not  be  maintained  upon  principle,  as  the  unbending  rule,  un- 
der all  conceivable  circumstances.  If  the  principal  debtor  is  and  has 
been,  from  the  time  the  right  to  bring  suit  against  him  has  accrued, 
utterly  and  hopelessly  insolvent,  with  no  property,  out  of  which 
anything  could  be  collected,  then  the  reason  of  the  rule,  which  re- 
quires the  principal  debtor  to  be  prosecuted  to  judgment  and  execu- 
tion with  all  diligence  ceases,  and  the  familiar  maxim  of  the  law, 
"cessante  ratione  legis  cessat,  et  ipse  lex,"  steps  in  and  relieves  the 
creditor  from  the  rule  of  diligence  in  prosecuting  his  suit.  The 
reason  of  the  rule  ceasing,  the  rule  itself  must  cease.  This  must 
be  so,  unless  we  are  prepared  to  hold  that  the  creditor  should  lose 
his  debt  for  the  want  of  due  diligence  in  doing  a  vain,  idle  and  use- 
less thing.  The  law  is  said  to  be  the  perfection  of  human  reason, 
and  should  not  be  subject  to  such  a  reproach.  Is  it  insisted  that 
the  judgment  and  the  issuing  and  return  of  an  execution  nulla 
bona  is,  under  all  circumstances,  the  best  evidence  of  the  debtor's 
inability  to  pay?  If  it  is  it  can  not  be  maintained.  His  recent  dis- 
charge under  the  bankrupt  act  of  congress,  or  under  the  insolvent 
laws  of  the  state,  on  the  petition  of  two-thirds  of  his  creditors  is 
better  evidence  of  his  insolvency  than  the  sheriff's  certificate  upon 
the  execution,  that  he  has  no  goods  or  chattels,  lands  or  tenement. 
The  one  is  preceded  by  a  full  and  complete  judicial  investigation 
into  the  property  and  affairs  of  the  bankrupt,  and  the  certificate 
of  discharge  is  only  issued,  when  the  property  of  the  debtor  has 


GUARANTY    OF    COLLECTIBILITY  279 

been  made  over  to  the  assignee  for  the  benefit  of  the  creditors. 
The  other  is  the  certificate  of  a  ministerial  officer,  often  made  upon 
the  very  slightest  investigation  and  never  more  than  prima  facie 
evidence. 

What  the  plaintiff  offered  to  prove,  in  the  case  at  bar,  would 
have  been  quite  as  satisfactory  evidence  of  the  inability  to  collect 
anything  of  the  principal  debtor,  as  the  return  of  the  sheriff,  upon 
an  execution ;  and,  it  seems  to  me  more  so.   The  plaintiff  offered  to 
prove  that  these  principal  debtors  were,  at  the  time  this  debt  fell  due, 
and  that  each  of  them,  ever  since,  had  been  entirely  and  hope- 
lessly insolvent,   and   that  nothing  could  have   been   collected   of 
them,  by  proceeding  at  law,  then  or  since.     This  evidence  was  ob- 
jected to  and  rejected  by  the  court.     Under  this  ruling,  we  must 
hold  that  the  creditor  is  compelled  to  proceed  to  judgment  and 
execution  against  the  principal  debtors,  where  they  are  concededly, 
entirely  and  hopelessly  insolvent,  and  have  nothing  out  of  which 
the  execution  could  be  collected,  and  that  he  must  do  this  with  all 
diligence  or  lose  his  debt.    There  is  no  other  principle  upon  which 
such  a  proposition  can  be  maintained,  than  that  it  is  so  provided  in 
the  bond,  and  that  the  party  must  stand  to  his  contract.    The  argu- 
ment must  be,  that  the  condition  of  the  guaranty  made  due  dili- 
gence, in  such  a  case,  a  condition  precedent  to  the  right  of  action 
against  this  guarantor.     The  decided  weight  of  authority  in  the 
Supreme  Court  of  this  state  is  certainly  to  this  effect.     The  rule, 
however,  has  been  seriously  questioned  by  some  of  the  judges  in 
that  court,  and  was  distinctly  repudiated  in  the  recent  case  of  Cady 
v.  Sheldon  (3  Barb.  R.  103).    All  that  such  a  guaranty  implies  is, 
that  the  evidence  of  debt  is  good,  and  collectible  by  due  course  of 
law.      The  courts  have  said  the  law  imposes  this  duty  to  prose- 
cute the  principal  debtor  with  reasonable  diligence ;  and  this  is  for  I 
the  purpose  of  insuring  the  collection  of  the  debt  out  of  the  prin-l 
cipal,  and  that  no  opportunity  shall  be  lost  to  do  so.    This  is  very 
well,  and  is  all  right,  as  a  general  rule,  as  we  have  already  said; 
but  when  the  principal  debtors  are  utterly  and  hopelessly  insolvent, 
and  have  nothing  out  of  which  an  execution  could  be  collected,  then 
the  law  excuses  the  want  of  diligence,  as  it  would  have  beep  idle 
and  useless  in  accomplishing  any  purpose  whatever.    Due  diligence 
in  prosecuting  the  principal   debtor,  who  is  proved  to~b^~utterly 
insolvent  and  without  any  property,   should  never  be   implied  _  in 
such  a  guaranty,  as  a  condition  precedent  to  the  right  of  action 
against  the  guarantor.     There  is,  certainly,  no  express  undertaking 
of  the  kind  in  the  contract  of  guaranty  under  consideration ;  and, 
as  none  will  be  implied,  it  is  not  required.     The  terms,  "good  and 
collectible,"  used  in  such  a  guaranty,  mean  nothing  more  than  "ca- 
pable of  being  collected."     (Marsh  v.  Day,  18  Pick.  R.  321  ;  Sanford 
v.  Allen,  1   Cush.  R.  474,  475.)    The  rule,  which  would  require 
the  creditor  to  prosecute  with  diligence,  in  such  a  case,  a  hopelessly 


280  COMMERCIAL    GUARANTIES 

insolvent  debtor,  without  any  property  out  of  which  to  collect  the 
same,  ought  not  to  obtain,  for  the  further  reason  that  it  would  be 
at  war  with  the  general  analogies  of  the  law. 

The  judgment  of  the  Supreme  Court  should  be  reversed  and  a 
new   trial   granted. 

Hunt,  Ch.  J.,  Grover,  Murray  and  Danield,  J  J.,  concurred  with 
Lott  for  affirmance.  Woodruff  and  James,  JJ.,  concurred  with 
Mason,  J.,  for  reversal. 

Judgment  affirmed. 

If  the  creditor  relies  upon  the  insolvency  of  the  principal  as  a  justification 
for  his  failure  to  bring  suit,  the  burden  of  proving  this  is  upon  him.  Allen  v. 
Rundle,  50  Conn.  9,  47  Am.  Rep.  599. 

In  Williams  v.  Miller,  70  Tenn.  405,  it  was  held  that  while  the  holder  is 
bound  to  sue  the  maker  in  the  courts  of  the  maker's  domicil,  he  is  not  re- 
quired to  pursue  remedies  that  he  might  have  against  the  property  of  the 
maker  in  states  other  than  that  of  his  domicil  even  though  the  maker  may 
have  property  in  the  state  of  the  holder  as  well  as  in  his  own. 


\ 


SECTION  8.   NOTICE  OF  DEFAULT 


THE  PRESIDENT,  ETC.,  OF  THE  OXFORD  BANK  v. 
DANIEL  P.  HAYNES 

25  Mass.  423,  19  Am.  Dec.  334  (1829). 

Assumpsit  upon  a  promissory  note,  dated  on  October  9,  1823,  for 
1,000  dollars,  payable  to  the  Oxford  bank  in  sixty  days  and  grace. 

On  a  case  stated  it  appeared  that  the  note  was  made  by  Alpheus 
Smith  and  James  Anderton  as  principal  and  surety,  jointly  and  sev- 
erally, and  was  offered  at  the  bank  for  discount ;  but  the  bank  re- 
fused to  discount  it,  and  the  cashier  wrote  on  the  back  of  it  the 
words,  "I  guaranty  the  payment  of  the  within  note,"  to  which  Smith 
procured  the  signature  of  the  defendant.  The  note  was  then  dis- 
counted at  the  bank,  and  the  amount  thereof  was  paid  to  Smith.  A 
payment  of  250  dollars  was  made  by  Smith  at  the  maturity  of  the 
note,  about  the  1st  of  December,  1823,  and  no  notice  of  the  non- 
payment of  the  residue  was  given  to  the  defendant.  The  note  so 
remained  until  October  7,  1824,  when  an  action  was  commenced 
upon  it  against  Smith,  and  one  Southgate  was  summoned  as  his 
trustee.  Judgment  was  rendered  in  that  action,  in  March,  1825,  and 
Southgate  paid  on  the  judgment  the  amount  in  his  hands,  being  535 
dollars ;  and  nothing  has  been  paid  upon  the  note  or  judgment  since. 
Smith  and  Anderton  were  reputed  to  be  men  of  property  at  the  time 
of  making  the  note  and  so  continued  until  the  time  of  their  failures. 
Smith  failed  about  the  23d  of  January,  1824,  and  Anderton  in  Feb- 
ruary following,  each  being  possessed  of  visible  and  attachable  prop- 


NOTICE   OF   DEFAULT  281 

erty  much  exceeding  the  amount  of  this  note,  and  which  was  at- 
tached and  levied  on  by  their  other  creditors.  Since  their  failures 
they Jiave  continued  insolvent. 

Smith  lived  about  ten  miles  from  the  Oxford  bank  and  in  the 
same  village  with  Haynes,  at  the  date  and  maturity  of  the  note. 
Anderton  lived  between  this  village  and  the  bank,  and  about  six 
miles  from  the  bank. 

On  the  7th  of  October,  1824,  the  directors  of  the  bank  chose  a 
committee  to  go  to  Leicester  to  effect  an  adjustment  of  the  affair, 
and  notice  was  then  given  to  Haynes  that  the  note  had  not  been  paid. 
Haynes  had  never  given  the  plaintiffs  notice  of  the  failure  of  Smith 
and  Anderton,  nor  requested  the  plaintiffs  to  collect  the  note.  Both 
Smith  and  Anderton,  previous  to  their  failures,  were  in  the  habit  of 
doing  business  at  the  Oxford  bank. 

The  plaintiffs  were  to  become  nonsuit  or  the  defendant  to  be  de- 
faulted, according  as  the  court  should  order. 

The  declaration  contained  two  counts ;  one  charging  the  defend- 
ant as  an  original  promisor,  the  other  as  a  guarantee. 

Parker,  C.  J.,  delivered  the  opinion  of  the  court.  It  is  very  clear 
from  the  facts  stated  that  the  bank  might  easily  have  secured  the 
amount  of  the  note,  had  they  attempted  to  do  it  when  it  became 
payable,  or  within  a  month  afterward ;  and  that  Haynes,  the  defend- 
ant, had  he  been  seasonably  called  upon  and  been  notified  of  the  non- 
payment of  the  note,  might  without  difficulty  have  obtained  security 
from  the  property  of  either  or  both  of  the  promisors.  Had  he  been 
an  indorser  of  the  note,  most  clearly  by  the  above  facts  he  would 
have  been  discharged,  not  only  because  the  condition  of  giving  notice 
was  not  strictly  complied  with,  but  because  there  was  gross  negli- 
gence on  the  part  of  the  bank,  and  a  new  credit  given  to  the  prom- 
isors without  the  consent  of  the  indorser. 

Haynes  therefore  can  not  be  liable,  unless  by  the  form  of  his  con- 
tract he  became  answerable  at  all  events,  and  unconditionally,  for 
the  payment  of  the  note.  And  it  is  contended  that  this  is  the  legal 
effect  of  the  contract  of  guaranty  into  which  he  entered. 

In  the  case  before  us  the  signature  of  the  defendant  was  not  in 
blank,  but  under  the  words  written  by  the  cashier,  the  agent  of  the 
plaintiffs,  which  import  a  guaranty  only.  This  is  the  only  character 
in  which  he  can  be  made  liable,  and  if  by  law  a  guarantee  is  not  an 
original  promisor,  he  can  not  be  sued  as  such. 

We  therefore  must  consider  what  is  the  liability  of  guarantee 
upon  a  promissory  note ;  whether  he  is  liable  at  all  events,  or  only 
upon  condition,  and  if  the  latter,  whether  the  condition  has  been 
here  performed. 

This  is  the  point  which  we  think  is  undecided  in  this  common- 
wealth, though  there  have  been  many  allusions  to  it  in  cases  such 


282  COMMERCIAL    GUARANTIES 

as  have  been  mentioned,  in  which  the  question  was  in  relation  to  the 
liability  of  a  surety,  or  of  one  who  put  his  name  on  a  note  not  nego- 
tiable, or  where  the  party  so  putting  his  name  had  no  authority  to 
assign,  not  being  the  payee.  But  no  case,  in  which  the  contract  was 
in  terms  a  guaranty,  and  so  intended  by  the  parties,  has  been  pre- 
sented to  the  court.  That  a  guarantee  differs  in  character  from  a 
surety  can  not  be  questioned,  for  he  can  not  be  sued  as  a  promisor, 
as  the  surety  may;  his  contract  must  be  specially  set  forth.  "That 
he  differs  from  an  indorser  is  equally  clear,  and  for  the  same  rea- 
son ;  and  also  because  he  warrants  the  solvency  of  the  promisor, 
which  the  indorser  does  not,  he  being  answerable  on  a  strict  com- 
pliance with  the  law  by  the  holder,  whether  the  promisor  is  solvent 
or  not.  There  are  cases  which  adopt  a  distinction  which  is  reason- 
able and  just,  in  which  the  guarantee  is  discharged  only  by  the  joint 
effect  of  negligence  on  the  part  of  the  holder,  and  an  actual  loss  or 
prejudice  to  the  guarantee  in  consequence  of  that  negligence.  It  is 
certainly  conformable  to  the  general  principles  of  right  and  justice^" 
that  the  creditor  who  knows  of  the  delinquency  of  his  debtor,  and 

J  withholds  information  of  it  from  the  guarantee,  by  reason  of  which 
the  debt  is  actually  lost,  when  it  might  have  been  saved  by  either, 

xshould  not  throw  the  loss  upon  the  guarantee.  It  is  contrary  to  the 
general  principles  of  equity,  upon  which  the  law  of  contracts  is 
considered  to  rest.  Can  it  be  supposed  that  a  creditor  holding  the 
note  of  one  thought  to  be  in  good  credit,  and  who  has  ample  means 
of  paying,  shall  have  a  right,  when  he  finds  there  is  an  inability  to 
take  up  the  note  on  its  becoming  due,  to  receive  partial  payment, 
give  further  credit,  and  thus  put  the  debt  in  jeopardy,  and  after  he 
has  indulged  the  debtor  ad  libitum,  shall  call  upon  the  guarantee  for 
the  deficiency,  when  absolute  insolvency  has  taken  place  and  all 
other  creditors  have  saved  themselves  out  of  his  effects  ?  This  would 
offend  all  the  analogies  of  the  law,  which  require  good  faith  and 
diligence,  to  enable  a  creditor  to  call  upon  parties  consequentially 
liable,  and  would  place  a  guarantee  in  a  worse  condition  than  a 
surety ;  who,  being  an  original  promisor,  may  take  up  the  note  when 
it  becomes  due  and  sue  the  principal  immediately.  The  glaring  in- 
justice of  such  a  position  has  been  discountenanced  by  those  courts 
which  have  had  the  question  presented  distinctly  to  them. 

In  8  East  242,  Lord  Ellenborough  says  the  same  strictness  of 
proof  is  not  necessary  to  charge  the  guarantee,  as  would  have  been 
necessary  to  support  an  action  on  the  bill  itself,  that  is,  against  an 
indorser,  where,  by  the  law  merchant,  a  demand  upon  and  refusal 
by  the  acceptors  must  have  been  proved,  in  order  to  charge  the 
other  party  on  the  bill,  and  this,  notwithstanding  the  bankruptcy  of 
the  acceptors.  Guarantees  insure  the  solvency  of  the  principals,  and 
therefore  if  the  latter  become  bankrupt  and  notoriously  insolvent,  it 
is  the  same  thing  as  if  they  were  dead,  and  it  is  nugatory  to  go 
through  the  ceremony  of  making  a  demand  upon  them^.  Lawrence, 


NOTICE    OF    DEFAULT  283 

J.,  says,  though  proof  of  demand  of  the  acceptors,  who  had  become 
bankrupt,  were  not  necessary  to  charge  the  guarantees,  yet  the  latter 
are  not  prevented  from  showing  that  they  ought  not  to  have  been 
called  upon  at  all,  for  that  the  principal  debtors  could  have  paid  the 
bill  if  demanded  of  them.  Le  Blanc,  J.,  says  it  is  sufficient  as  against 
a  guarantee  that  the  holder  of  the  bill  could  not  have  obtained  the 
money  by  making  a  demand  upon  the  bill. 

And  in  2  Taunt.  206,  it  was  decided  that  a  guarantee  is  entitled  to 
notice,  if  the  parties  to  the  bill  are  not  insolvent  at  the  time  it  is  due. 

But  the  principle  is  more  accurately  and  intelligibly  stated  by 
Duncan,  J.,  in  the  case  of  Cannon  v.  Gibbs,  9  Serg.  &  Rawle  202. 
"I  think",  says  he,  "upon  a  review  of  these  cases,  the  line  is  clearly 
marked  out.  It  is  this:  that  the  guarantor  is  discharged,  if  notice  is 
not  given  of  nonpayment  to  him,  that  he  may  avail  himself  of 
proper  presentment,  demand  and  of  due  notice  of  nonpayment  where 
the  drawer  and  indorser,  or  either  of  them,  are  solvent  at  the  time 
the  note  became  due.  But  where  both  are  then  insolvent,  this  would 
be  prima  facie  evidence  that  a  demand  on  them,  and  notice  to  the 
guarantor,  not  a  party  to  the  bill,  would  be  dispensed  with,  the  pre- 
sumption being,  that  the  guarantor  was  not  prejudiced  by  the  want 
of  notice." 

And  this  seems  to  be  the  true  ground ;  for  it  leaves  the  loss  upon 
the  party  whose  gross  negligence  is  the  cause  of  loss  to  any  one, 
instead  of  throwing  it  upon  him  who  would  suffer  entirely  from  the 
carelessness  of  the  party  who  would  recover  of  him.  Upon  this  prin- 
ciple we  decide  the  present  case  in  favor  of  the  defendant,  without 
trenching  at  all  upon  the  decisions  relating  to  the  liability  of  sure- 
ties, or  those  who,  by  signing  their  names  in  blank  upon  notes  not 
negotiable,  are  regarded  as  quasi-sureties ;  this  being  clearly  a  con- 
tract of  guaranty  only,  in  its  form,  and  subject  to  the  rules  which  /m 
govern  that  species  of  contract.  It  is  clear  that  both  the  promisors^? 
in  the  note  were  solvent  when  it  became  due,uahdHfhat  they  had/ 
abundant:  property  liable  to  attachment.  But  the  plaintiffs,  with  the 
knowledge  of  their  delinquency,  lay  by  nine  months,  during  which 
time  their  property  was  sacrificed  and  all  hopes  of  obtaining  pay- 
ment were  by  that  means  lost.,  Some  intimations  were  made  in  the 
argument,  that  it  was  the  usage  of  the  bank,  when  notes  have  been 
discounted,  to  suffer  a  renewal  from  time  to  time,  on  the  payment 
of  a  certain  portion  of  the  sum  loaned,  as  the  notes  should  become 
due.  It  is  not  stated  in  the  case  agreed,  that  there  was  such  usage,  or 
any  stipulation  to  that  effect,  and  this  was  known  to  the  defendant, 
it  may  be  questionable  whether  the  want  of  notice  would  avail  him 
in  defense. 

Plaintiffs  nonsuit. 

Accord:  Greene  v.  Thompson,  33  Iowa  293;  Cox  v.  Brown,  51  N.  Car.  100; 
Lemmert  v.  Guthrie  Bros.,  69  Nebr.  499,  95  N.  W.  1046,  62  L.  R.  A.  954,  111 
Am.  St.  561. 


284  COMMERCIAL    GUARANTIES 

"Where  notice  of  default  is  required,  failure  to  give  it  will  be  a  discharge 
pro  tanto  only.  Walker  v.  Forbes,  25  Ala.  139,  60  Am.  Dec.  498;  Howe  v. 
Nichels,  22  Maine  175;  Beebe  v.  Dudlev,  26  N.  H.  249,  59  Am.  Dec.  341; 
Davis  v.  Wells,  104  U.  S.  159,  26  L.  ed.  686. 

Notice  from  the  obligee  is  unnecessary  where  the  guarantor  has  notice  of 
the  default  from  an  independent  source.  Mameron  v.  National  Lead  Co.,  206 
111.  626,  69  N.  E.  504,  99  Am.  St.  196. 


HELEN  M.  ROBERTS  v.  LEWIS  E.  HAWKINS. 

70  Mich.  566,  38  N.  W.  575  (1888). 

Long,  J. :  January  12,  1884,  one  Lyman  D.  Follett  made  his  prom- 
issory note  as  follows : 

"$1,000.  Grand  Rapids,  Mich.,  January  12,  1884. 

"One  year  after  date,  I  promise  to  pay  to  the  order  of  Helen  M. 
Roberts  one  thousand  dollars,  with  interest  at  eight  per  cent.-  per 
annum.   Value  received. 

"Lyman  D.  Follett." 

And  defendant  signed  an  indorsement  on  the  back  thereof,  as 
follows : 

"For  value  received,  I  hereby  guarantee  the  payment  of  the 
within  note. 

"L.  E.  Hawkins." 

On  the  delivery  of  this  note  to  plaintiff,  she  paid  Follett  $1,000. 
January  8,  1885,  seven  days  before  this  note  became  due,  Follett 
paid  one  year's  interest ;  and  neither  at  that  time,  nor  at  the  maturity 
of  the  note,  was  the  same  presented  to  Follett  or  defendant  for  pay- 
ment. No  notice  of  nonpayment  was  given  defendant  then  or  at 
any  time  prior  to  June  8,  1887.  January  15,  1886,  Follett  paid  the 
interest  for  the  next  year,  and  January  17,  1887,  for  the  year  fol- 
lowing. About  June  8,  1887,  the  note  being  then  two  years  and  five 
months  overdue,  it  was  first  presented  to  defendant,  and  payment 
demanded  and  refused.   August  13  this  suit  was  brought. 

On  the  trial,  plaintiff,  having  proved  the  note  and  guaranty,  and 
its  nonpayment,  rested.  Defendant  then  sought  to  make  his  defense 
as  pleaded,  and  offered  to  show : 

1.  That  he  was  an  accommodation  guarantor,  without  considera- 
tion or  security. 

2.  That,  at  or  about  the  maturity  of  the  note,  he  inquired  of  the 
maker  of  the  note  if  it  was  paid,  and  was  told  it  was. 

3.  That  neither  at  the  maturity  of  the  note,  nor  at  any  subsequent 
time,  prior  to  June  8,  1887,  was  any  notice  of  the  nonpayment  of 
this  note  given  to  defendant,  nor  any  demand  made  on  him  for  the 
payment  thereof. 


NOTICE   OF   DEFAULT  285 

4.  That  at  the  maturity  of  this  note,  and  for  some  considerable 
/time  thereafter — at  least  a  year — Follett,  the  maker  of  the  note,  was 

solvent,  and  had  property  out  of  which  defendant  could  have  pro- 
cured him  to  pay  the  note  or  obtained  security. 

5.  That  when  defendant,  on  June  8,  1887,  learned  of  the  non- 
payment of  this  note,  the  maker  was  insolvent,  out  of  the  jurisdic- 
tion, and  that  he  could  then  obtain  no  security  or  payment. 

The  court  directed  a  general  verdict  for  plaintiff  on  all  the  counts 
of  the  declaration.  Judgment  being  entered  on  the  verdict  in  favor 
of  plaintiff  for  the  amount  of  the  note  and  interest,  defendant  brings 
the  case  into  this  court  by  writ  of  error. 

;j«  ^C  Jfc  ^t  :j:  ^  ^c 

The  chief  error  complained  of  is  the  exclusion  of  the  entire  de- 
fense, and  the  direction  of  a  verdict  for  plaintiff.  On  the  trial  the 
plaintiff  proved  by  a  witness  the  application  for  the  loan,  the  loan- 
ing of  the  money,  the  giving  of  the  note  and  guaranty,  and,  after 
reading  the  note  and  guaranty  in  evidence,  rested.  The  defendant 
was  then  called  and  sworn  as  a  witness  in  his  own  behalf,  and  was 
asked  by  his  counsel : 

"Q.  When  that  note  became  due,  in  January,  1885 — January  15 — 
was  any  notice  given  you  of  the  fact  that  it  remained  unpaid?" 

To  t  his_qn.es  t  ion  counsel  for  plaintiff  objected,  that  the  same  was 
irrelevant  and  immaterial ;  that  the  defendant  was  not  an  indorser 
nor  guarantor  of  collection,  but  of  payment  of  the  note. 

Counsel  for  the  defendant  then  offered  to  show  by  the  witness 
that  he  had  no  notice  of  the  nonpayment  of  the  note  prior  to  June 
8,  1887 ;  that  he  was  an  accommodation  guarantor  without  security ; 
that,  at  or  near  the  maturity  of  the  note,  he  inquired  of  the  maker, 
and  was  informed  that  it  was  paid ;  that,  at  the  time,  the  maker  of 
the  note  was  solvent,  and  for  some  considerable  time  thereafter — 
probably  a  year — and  that  the  defendant  could,  if  he  had  any  knowl- 
edge of  its  nonpayment,  have  secured  himself,  or  procured  the  maker 
to  pay  it;  that,  when  the  defendant  learned  of  the  nonpayment  of 
the  note,  the  maker  was  insolvent,  and  out  of  the  state,  and  no  se- 
curity could  have  been  obtained  by  the  defendant;  the  counsel  then 
saying : 

"That  this,  of  course,  is  the  line  of  defense  marked  out  by  the 
notice  in  the  pleadings.  It  is  all  covered  by  my  brother's  argument ; 
and,  if  we  have  no  right  to  show  that  defense,  then,  of  course,  there 
remains  nothing  but  for  the  court  to  direct  a  verdict  for  the  amount 
of  the  note,  and  interest." 

The  court  sustained  the  objection,  and  directed  a  verdict  for 
plaintiff. 

In  considering  the  case,  the  defendant's  offer  to  prove  this  state  of 
facts  must  be  taken  as  true.  Clay,  etc.,  Ins.  Co.  v.  Manufacturing 
Co.,  31  Mich.  356.    Under  this  offer  by  the  defendant,  the  issue  is 


286  COMMERCIAL    GUARANTIES 

made:  Is  a  person  not  being  a  party  to  a  promissory  note,  who  at 
its  date  and  before  delivery,  and  for  the  purpose  of  having  a  loan 
made  upon  the  strength  of  his  guaranty,  guarantees  the  payment  of 
such  note,  liable  thereon  in  case  the  note  is  not  paid  at  maturity, 
without  notice  of  nonpayment  having  been  given  to  him  by  the 
holder  at  the  maturity  of  the  note,  or  within  a  reasonable  time  there- 
after; or  in  case  notice  is  not  given,  and  no  proceedings  taken  to 
collect  the  note  from  the  maker,  and  the  maker  of  the  note,  at  the 
maturity  thereof,  was  solvent,  and  subsequently,  and  before  suit  is 
brought  on  the  guaranty,  becomes  insolvent,  can  such  guarantor, 
when  such  action  is  brought  against  him,  set  up  such  insolvency  as 
a  defense?  The  defense  being  based  on  plaintiff's  laches  in  not  giv- 
ing notice  to  defendant  of  tbe  nonpayment  of  this  note  at  maturity, 
and  the  consequent  damage  to  defendant  thereby,  the  correctness  of 
the  court's  ruling  depends  on  whether  or  not  there  rested  on  the 
plaintiff  the  duty  to  give  such  notice  under  any  circumstances. 

The  defendant  claims  that  his  liability  existed  only  on  the  hap- 
pening of  a  contingency  and  the  performance  of  a  condition;  that 
whether  or  not  that  contingency  happened,  or  condition  was  per- 
,  formed,  was  matter  peculiarly  within  the  knowledge  of  the  plaintiff, 
'and  not  within  his  own;  and  that  if  plaintiff  intended  to  assert  the 
performance  of  the  condition,  or  the  happening  of  the  contingency, 
whereby  alone  defendant  was  to  become  liable,  it  was  her  duty  to  do 
so  within  a  reasonable  time,  and,  in  any  event,  before  the  maker  of 
the  note  became  insolvent  and  a  fugitive;  that  her  neglect  to  do  so, 
and  the  damage  to  him  thereby,  has  released  him  from  the  obligation 
of  his  conditional  contract. 

The  position,  however,  of  a  guarantor  of  payment,  as  between  him 
and  the  maker  of  the  note,  is  that  of  a  surety.  It  is  a  common-law 
contract,  and  not  a  contract  known  to  the  law-merchant.  It  is  an 
absolute  promise  to  pay  if  the  maker  does  not  pay,  and  the  right  of 
action  accrues  against  the  guarantor  at  the  moment  the  maker  fails 
to  pay.  The  guarantor  would  not  be  discharged  by  any  neglect  or 
even  refusal  on  the  part  of  the  holder  of  the  note  to  prosecute  the 
principal,  even  if  the  maker  was  solvent  at  the  maturity  of  the  note, 
and  subsequently  became  insolvent;  and  the  fact  that  no  notice  of 
nonpayment  was  given  the  guarantor  at  the  maturity  of  the  note,  or 
at  any  time  before  bringing  suit,  would  not  affect  the  rights  of  the 
holder  of  the  note  against  the  guarantor.  The  guarantor's  remedy 
was  to  have  paid  the  note,  and  taken  it  up,  and  himself  proceeded 
against  the  maker. 

A  guaranty  is  held  to  be  a  contract  by  which  one  person  is  bound 
to  another  for  the  due  fulfilment  of  a  promise  of  engagement  of  a 
third  party.  2  Pars.  Cont.  3. 

The  contract  or  undertaking  of  a  surety  is  a  contract  by  one  per- 
son to  be  answerable  for  the  payment  of  some  debt,  or  the  perform- 
ance of  some  act  or  duty,  in  case  of  the  failure  of  another  person 


NOTICE    OF   DEFAULT  287 

who  is  himself  primarily  responsible  for  the  payment  of  such  debt 
or  the  performance  of  the  act  or  duty.  3  Add.  Cont.,  p.  1111;  3 
Kent  Comm.  121 ;  Wright  v.  Simpson,  6  Ves.  734. 

In  the  case  of  Pain  v.  Packard,  13  John.  174  (decided  in  1816), 
it  was  held  that  if  the  surety  call  upon  the  creditor  to  collect  the  debt 
of  the  principal,  and  he  disregard  that  request,  and  thereby  the 
surety  is  injured,  as  by  the  subsequent  insolvency  of  the  principal, 
the  surety  was  thereby  discharged.  A  directly  contrary  decision  was 
given  by  Chancellor  Kent,  upon  argument  and  full  consideration, 
the  following  year.  Kind  v.  Baldwin,  2  Johns.  Ch.  554.  Two  years 
later  the  last  decision  was  reversed  by  the  court  of  errors  by  casting 
vote  of  the  presiding  officer,  a  layman,  and  against  the  opinion  of 
the  majority  of  the  judges.   King  v.  Baldwin,  17  Johns.  384. 

In  the  case  of  Brown  v.  Curtiss,  2  N.  Y.  226  (decided  in  1849), 
the  action  was  brought  against  the  guarantor  of  a  promissory  note. 
On  the  trial  it  was  admitted  that  there  had  been  no  demand  of  the 
maker,  nor  any  notice  of  nonpayment,  and  the  note  was  dated  April 
2,  1838,  and  payable  six  months  after  date.  The  suit  was  brought 
against  the  guarantor  in  September,  1845.  The  defendant  offered 
to  prove  that,  from  the  time  the  note  fell  due  until  the  latter  part 
of  1843,  the  maker  was  able  to  pay  the  note ;  that  he  then  failed, 
and  was  insolvent  at  the  time  of  the  commencement  of  the  suit,  and 
still  remained  so.  This  eyidence  was  objected  to,  and  excluded,  and 
verdict  directed  for  plaintiff.   The  court  (at  p.  227)  says: 

"The  undertaking  of  the  defendant  was  not  conditional,  like  that 
of  an  indorser ;  nor  was  it  upon  any  condition  whatever.  It  was  an 
absolute  agreement  that  the  note  should  be  paid  by  the  maker  at 
maturity.  When  the  maker  failed  to  pay,  the  defendant's  contract 
was  broken,  and  the  plaintiff  had  a  complete  right  of  action  against 
him.  *  *  *  Proof  that  when  the  note  became  due,  and  for  sev- 
eral years  afterward,  the  maker  was  abundantly  able  to  pay,  and  I 
that  he  had  since  become  insolvent,  would  be  no  answer  to  this  ac- 
tion. The  defendant  was  under  an  absolute  agreement  to  see  that 
the  maker  paid  the  note  at  maturity.     *     *     * 

"If  the  defendant  wished  to  have  him  sued,  he  should  have  taken 
up  the  note,  and  brought  the  suit  himself.  The  plaintiff  was  under 
no  obligation  to  institute  legal  proceedings." 

The  weight  of  authority,  both  in  this  country  and  in  England, 
sustains  this  doctrine,  and  we  think  with  much  good  reason.  Bellows 
v.  Lovell,  5  Pick.  310;  Davis  v.  Huggins,  3  N.  H.  231 ;  Page  v.  Web- 
ster, 15  Maine  249;  Dennis  v.  Rider,  2  McLean  451. 

In  Train  v.  Jones,  1 1  Vt.  446,  it  is  said : 

"An  absolute  guaranty  that  the  debt  of  a  third  person  shall  be 
paid,  or  that  he  shall  pay  it,  imposes  the  same  obligation  upon  the 
guarantor.  In  either  case,  it  is  an  absolute  guaranty  of  the  sum 
stipulated^  and  the  creditor  is  not  bound  to  use  diligence,  or  to  give 
reasonable  notice  of  nonpayment."   Noyes  v.  Nichols,  28  Vt.  174. 


288  COMMERCIAL    GUARANTIES 

In  Bloom  v.  Warder,  13  Nebr.  478  (14  N.  W.  Rep.  396),  which 
was  an  action  against  the  guarantors  of  payment  of  a  promissory 
note,  the  court  says : 

"This  is  an  absolute  contract,  for  a  lawful  consideration,  that  the 
money  expressed  in  the  note  shall  be  paid  at  maturity  thereof  at  all 
events,  and  depends  in  no  degree  upon  a  demand  of  payment  of  the 
maker  of  the  note,  or  any  diligence  on  the  part  of  the  holder." 

Mere  passiveness  on  the  part  of  the  holder  will  not  release  the 
guarantor,  even  if  the  maker  of  the  note  was  solvent  at  its  maturity, 
and  thereafter  became  insolvent.  Breed  v.  Hillhouse,  7  Conn.  528; 
Bank  v.  Hopson,  53  Conn.  454  (5  Atl.  Rep.  601)  ;  Foster  v.  Tolle- 
son,  13  Rich.  Law  33;  Machine  Co.  v.  Jones,  61  Mo.  409;  Barker 
v.  Scudder,  56  id.  276;  Norton  v.  Eastmen,  4  Greenl.  521 ;  Brown 
v.  Curtiss,  2  N.  Y.  225 ;  Allen  v.  Rightmere,  20  Johns.  365 ;  Bank 
v.  Sinclair,  60  N.  H.  100 ;  Gage  v.  Bank,  79  111.  62 ;  Hungerf ord  v. 
O'Brien,  37  Minn.  306  (34  N.  W.  Rep.  161). 

It  follows  that,  this  being  an  absolute  undertaking  on  the  part  of 
the  defendant  as  guarantor  to  pay  the  amount  of  this  note  at  ma- 
turity in  the  event  of  the  default  of  payment  by  the  principal,  the 
guarantor  could  not  demand  any  diligence  on  the  part  of  the  holder 
of  the  note  to  collect  the  same  from  the  principal.  It  was  his  duty  to 
perform  his  contract — that  is,  to  pay  the  note  upon  default  of  the 
principal ;  and  it  is  no  answer  for  him  to  £ay  that  the  principal  was 
solvent  at  the  maturity  of  the  note,  and  that  the  same  could  then 
have  been  collected  of  him  by  the  holder,  and  that  he  has  since  be- 
come insolvent.  If  he  wished  to  protect  himself  against  loss,  he 
should  have  kept  his  engagement  with  the  holder  of  the  note,  paid 
it  upon  default  of  the  principal,  taken  up  the  note,  and  himself 
prosecuted  the  party  for  whose  faithful  performance  of  the  contract 
he  became  liable. 

The  court  properly  directed  the  verdict  for  the  plaintiff;  and  the 
judgment  of  the  court  below  must  be  affirmed,  with  costs. 

The  other  justices  concurred. 

Accord:    Pfaelzer  v.  Kau,  207  111.   116,  69  N.  E.  914;  Pleasantville  Mut. 

Loan  &c.  Soc.  v.  Moore,  70  N.  J.  L.  306,  57  Atl.  1034 ;  Clay  v.  Edgfirtejv^1 

Ohio  St.  549.  2  Am.  Rep.  422;  First  Nat.  Bank  v.  Babcock,  94  Cal.  96,  29 

'  Pac.  415,  28  Am.  St.  94;  Read  v.  Cutts,  7  Maine  186,  22  Am.  Dec.  184;  Booth 

v.  Irving  Nat.  Exch.  Bank,  116  Md.  668,  82  Atl.  652. 


f- 


NOTICE    OF   DEFAULT  289 


CHARLES  A.  WELCH  &  ANOTHER,  TRUSTEES,  v.  JAMES 

H.  WALSH 

177  Mass.  555,  59  N.  E.  440,  52  L.  R.  A.  782,  83  Am.  St.  302  (1901). 

Contract  against  the  guarantor  of  a  lease  dated  January  2,  1893, 
for  a  term  of  ten  years  to  one  John  Judge  of  a  store  in  Boston  at  a 
rental  of  $750  per  annum  payable  $62.50  monthly.  Writ  dated  Feb- 
ruary 7,  1898. 

At  the  trial  in  the  superior  court,  before  Mayard,  J.,  it  appeared 
that  the  guaranty  upon  the  lease,  signed  under  seal  by  the  defendant^ 
was  as  follows : 

"In  consideration  of  the  execution  of  the  within  written  lease,  and 
of  one  dollar  to  me  paid,  the  receipt  whereof  is  hereby  acknowl- 
edged, do  hereby  guarantee  to  the  said  lessors,  their  heirs  and  as- 
signs, the  true  and  punctual  payment  of  the  rent,  taxes  and  interest 
reserved  at  the  times  and  in  the  manner  there  mentioned,  and,  in 
default  thereof,  promise  to  pay  the  same  on  demand." 

It  further  appeared,  that  on  November  15,  1897,  the  defendant 
received  a  letter  from  one  of  the  plaintiffs  informing  him  that 
Judge  had  failed  to  pay  his  rent  for  one  year  and  eleven  months  up 
to  November  1,  1897,  and  also  had  failed  to  pay  taxes  for  the 
years  1896  and  1897,  the  whole  amounting  to  $1,705.48.  Up_Jo  No- 
vember 15,  1897,  the  defendant  had  received  no  notice  that  Judge 
was  in  arrears  and  no  demand  from  the  plaintiffs  for  payment  of 
r«Tr^rta3ces7-aTrf"liad  no  knowledge  of  a  default  in  the  performance 
of  the  terms  of  the  lease.  One  of  the  plaintiffs  testified  that  they 
permitted  Judge  to  remain  in  possession  without  taking  any  steps 
to  enforce  payment  of  the  rent  or  taxes,  because  Judge  was  an  old 
and  trusted  tenant  toward  whom  they  wished  to  be  lenient. 

The  defendant  offered  to  show  that  from  January,  1895,  until 
April,  1897,  Judge  was  actively  engaged  in  business  in  Boston,  and 
was  regularly  paying  his  debts  to  his  creditors  other  than  the  plain- 
tiffs ;  that  during  the  whole  of  this  time  he  had  abundant  property, 
both  real  and  personal,  unencumbered,  from  which  the  rent  could 
have  been  collected,  and  from  which  the  guarantor  could  have  re- 
imbursed himself ;  that  in  April,  1897,  Judge  was  petitioned  into 
insolvency,  a  warrant  was  issued,  and  he  received  his  discharge  in 
insolvency ;  and  that  ever  since  that  time  he  had  remained  altogether 
insolvent  and  had  no  property  from  which  a  debt  could  be  collected. 

The  judge  ruled  that  these  facts,  if  shown,  would  not  be  any 
defense  to  the  action  or  warrant  submitting  the  case  to  the  jury,  and 
that  all  evidence  of  such  facts  would  be  inadmissible,  and  directed 
a  verdict  for  the  plaintiffs  for  the  amount  claimed  in  the  declaration. 
The  defendant  alleged  exception.  Qufkr*+s 
19_De  Witt.  "^ 


290  COMMERCIAL    GUARANTIES 

Loring,  J. :  The  evidence,  which  was  excluded,  would  have  war- 
ranted a  finding  that  the  plaintiffs  conducted  themselves  in  the  mat- 
ter of  collecting  the  rent  now  sued  for  without  that  care  which  a 
man  of  ordinary  prudence  would  have  devoted  to  it,  and  that  the 
defendant  has  suffered  from  not  knowing  that  the  rent  was  not  paid 
by  the  tenant  for  twenty-three  months  before  the  plaintiffs  made  a 
demand  upon  him  for  it ;  but  it  would  not  have  warranted  a  finding 
of  fraud,  or  facts  tantamount  to  fraud. 

The  defendant  contends  that  those  facts  would  have  made  out  a 
defense  to  the  action,  and  relies  upon  a  statement  in  the  opinion  of 
Wells,  J.,  in  Vina!  v.  Richardson,  13  Allen  521,  532;  he  also  relies 
upon  Oxford  Bank  v.  Haynes,  8  Pick.  423,  and  the  numerous  cases 
in  this  commonwealth  which  have  recognized  or  followed  that  case; 
and  also  upon  Douglass  v.  Reynolds,  7  Pet.  113  ;  Reynolds  v.  Doug- 
lass, 12  Pet.  497 ;  and  the  opinion  of  Matthews,  J.,  in  Davis  v.  Wells, 
104  U.  S.  159,  161. 

It  is  true  that  there  is  a  statement  in  the  opinion  of  Mr.  Justice 
Wells  in  Vinal  v.  Richardson  which  supports  the  defendant's  con- 
tention ;  in  that  case  he  said :  "Formal  notice  is  not  necessary  in 
order  to  charge  the  guarantor  with  liability.  All  the  cases  agree  that 
in  this  respect  there  is  a  distinction  between  an  indorser  and  a  guar- 
antor. Negligence  of  the  holder  of  the  guaranty,  in  permitting  the 
claim  to  slumber,  when  the  guarantor  might  reasonably  suppose  it 
had  been  paid  when  due,  or  in  the  usual  course  of  business,  is  the 
real  ground  on  which  the  guarantor  is  exonerated.  It  is  delay  with- 
out notice,  not  the  bringing  of  a  suit  without  notice,  that  is  fatal  to 
the  holder  of  the  guaranty."  But  that  proposition,  which  was  obiter 
in  Vinal  v.  Richardson,  is  not  consistent  with  Watertown  Ins.  Co. 
v.  Simmons,  131  Mass.  85,  not  cited  at  the  argument  in  the  case  at 
bar,  unless  a  distinction  is  to  be  drawn  between  a  guarantor  of  rent 
to  be  paid  each  month  and  sureties  on  a  bond  conditioned  for  the 
monthly  payment  of  sums  to  be  collected  by  the  principal  of  the 
bond.  Watertown  Ins.  Co.  v.  Simmons  was  a  case  where  suit  was 
brought  against  the  sureties  on  a  bond,  with  the  condition  just 
stated,  and  the  defense  set  up  was  that  the  plaintiff  had  failed  to 
notify  the  sureties  that  for  thirteen  months  before  a  demand  was 
made  upon  them  the  principal  had  failed  to  make  payment  in  full  of 
the  sums  collected  by  him;  it  was  held  that  this  was  not  a  defense, 
and  on  the  ground  that  "the  creditor  owes  no  duty  of  active  diligence 
to  take  care  of  the  interest  of  the  surety.  It  is  the  business  of  the 
surety  to  see  that  his  principal  performs  the  duty  which  he  has  guar- 
anteed, and  not  that  of  the  creditor."  / 

The  defendant's  difficulty  in  this  case  is  to  make  out  that  a  lessor/ 
owes  any  duty  to  one  who  has  guaranteed  the  payment  of  rent. 

It  was  settled  in  Vinal  v.  Richardson,  after  deliberate  considera- 
tion that  notice  to  the  guarantor  that  the  tenant  has  not  paid  the 
rent  is  not  a  condition  on  which  the  guarantor's  liability  depends. 


NOTICE   OF   DEFAULT  291 

The  defendant  now  contends  that,  though  the  guarantor  becomes 
Hable-ttpon-- the  .default  in  payment  of  the  rent  without  notice  of  it, 
yet,  if  the  lessor  subsequently  fails  to  give  notice  of  that  default  to 
the  guarantor,  and  the  guarantor  suffers  damage  therefrom,  the 
guarantor  is  discharged. 

-  Where  no  duty  is  owed  there  can  not  be  negligence^  as  was  lately 
decided  by  tin's  court  in  Shepard  &  Morse  Lumber  Co.  v.  Eldridge, 
171  Mass.  516.  See  also  Patent  Safety  Gun  Cotton  Co.  v.  Wilson, 
49  L.  J.  Q.  B.  (N.  S.)  713. 

The  defendant  has  undertaken  to  make  out  that  there  is  a  duty 
on  the  creditor  to  give  notice  to  the  guarantor.  He  has  undertaken 
to  establish  this,  in  the  first  place,  on  general  principles,  which  are 
common  to  all  cases  where  persons  are  secondarily  liable ;  his  propo- 
sition is  that,  in  every  such  case,  a  creditor  is  bound  so  to  conduct 
himself  in  dealing  with  one  primarily  liable  as  not  unnecessarily  or 
unreasonably  to  injure  one  secondarily  liable.  But  no  such  duty  is 
owed  to  those  secondarily  liable ;  the  duty  owed  them  is  a  much 
narrower  one ;  it  is  to  do  no  act  which  affects  the  rights  to  which  the 
surety  is  subrogated  on  meeting  his  guaranty,  either  in  property 
held  by  the  creditor  as  security  for  the  debt  guaranteed,  or  to  bring 
suit  against  the  principal  debtor;  if  the  creditor  abstains  from  doing 
such  an  act  he  has  performed  his  whole  duty  to  the  surety.  There 
is  no  duty  upon  the  creditor  to  take  active  measures  to  collect  the  , 
debt  from  the  principal  debtor  or  to  notify  the  person  secondarily 
liable  that  the  principal  debtor  is  in  default ;  no  authority  beyond 
National  Bank  of  South  Reading  v.  Sawyer,  ante,  490,  and  Water- 
town  Ins.  Co.  v.  Simmons,  131  Mass.  85,  need  be  cited  to  that  point. 

There  was  nothing  in  the  terms  of  the  contract  of  guaranty  in  the/ 
case  at  bar  which  cast  upon  the  lessor  the  duty  of  giving  to  the  guar- 
antor notice  that  the  rent  had  not  been  paid.  The  terms  of  the  guar- 
anty in  this  case  were  that  the  defendant  does  "hereby  guarantee  to 
the  said  lessors,  their  heirs  and  assigns,  the  true  and  punctual  pay-  [  t 
ment  of  the  rent,  taxes  and  interest  reserved  at  the  times  and  in  the 
manner  there  mentioned,  and,  in  default  thereof,  promise  to  pay  the 
same  on  demand."  That  is  an  absolute,  unconditional  guaranty  that 
the  rent  shall  be  paid,  coupled  with  a  promise  to  pay  the  same  on 
demand  being  marie  upon  the  guarantor,  in  case  there  is  a  default  in 
the  payment  of  rent  by  the  lessee. 

If,  therefore,  there  was  any  duty  upon  the  lessor  to  give  notice  to 
the  guarantor  that  the  rent  was  in  default,  it  must  be  found  in  the 
nature  of  the  contract  of  a  guarantor,  and,  after  the  decision  in 
Watertown  Ins.  Co.  v.  Simmons,  in  the  nature  of  the  contract  of  a 
guarantor,  as  distinguished  from  the  contract  of  a  surety  on  a  bond, 
such  as  was  before  the  court  in  that  case.  The  difference  between 
the  contract  of  a  guarantor  and  the  contract  usually  entered  into  by 
a  surety  is  that  in  case  of  a  guarantor  the  promise  of  the  person 
secondarily  liable  is  a  collateral  promise  to  pay,  in  case  default  is 


292  COMMERCIAL    GUARANTIES 

made  by  one  who  is  primarily  liable  for  the  thing  guaranteed,  while 
a  surety  contracts  directly  as  a  principal  to  pay  the  sum  of  money 
for  which  he  is  secondarily  liable.  See  Bigelow,  J.,  in  Allen  v.  Her- 
rick,  15  Gray  274,  285.  So  far  as  this  difference  is  concerned,  the 
contract  of  the  surety  upon  a  bond  conditioned  for  the  payment  of 
sums  collected  by  a  third  person  partakes  of  the  nature  of  the  con- 
tract of  a  guarantor  and  not  of  the  contract  of  a  surety.  Moreover, 
in  one  of  the  earliest  cases  in  England  in  which  it  was  held  that  no- 
tice to  a  guarantor  was  not  a  condition  precedent  to  his  liability,  the 
decision  was  put  upon  the  ground  that  no  such  duty  was  owed  by 
the  creditor  to  the  guarantor ;  it  is  the  case  of  Brookbank  v.  Taylor, 
in  the  Exchequer  Chamber,  and  reported  in  Cro.  Jac.  685  ;  that  was 
a  writ  of  error  brought  in  an  action  to  collect  rent  from  a  guarantor  ; 
the  error  assigned  was  "because  it  is  not  alleged,  that  notice  was 
given  that  the  other  had  not  paid. — Sed  non  allocatur ;  for  he  at  his 
peril  ought  to  take  cognizance  of  the  nonpayment  and  pay  the  rent, 
otherwise  the  promise  is  broken."  To  the  same  effect,  see  Baron 
Parke  in  Walton  v.  Mascall,  13  M.  &  W.  452,  458;  and  Lord  Eldon 
in  Wright  v.  Simpson,  6  Ves.  714,  734,  who  says :  "But  the  surety 
is  a  guarantee ;  and  it  is  his  business  to  see,  whether  the  principal 
pays,  and  not  that  of  the  creditor."  No  distinction,  therefore,  can 
be  made  between  the  contract  of  a  guarantor  and  the  contract  of  a 
surety  on  a  bond,  so  far  as  this  question  is  concerned,  and  what  was 
said  in  Watertown  Ins.  Co.  v.  Simmons,  131  Mass.  85,  86,  is  appli- 
cable to  this  case :  "The  surety  is  bound  to  inquire  for  himself ;  and 
can  not  complain  that  the  creditor  does  not  notify  him  of  the  state 
of  the  accounts  between  him  and  his  agent,  for  whom  the  surety  is 
liable."   See  also  French  v.  Bates,  149  Mass.  73,  81. 

There  are  doubtless  expressions  in  the  early  cases  in  Massachu- 
setts which  countenance  the  proposition  that  a  guarantor  is  in  all 
cases  entitled  to  notice  of  the  principal  debtor's  default.  It  was  de- 
cided in  this  commonwealth  in  Oxford  Bank  v.  Haynes,  that  the 
guarantor  of  a  note,  even  when  the  only  person  liable  on  it  is  the 
principal  debtor,  is  entitled  to  such  a  notice  and  if  he  is  damnified 
by  not  receiving  it  within  a  reasonable  time  he  is  discharged ;  that 
case  has  been  followed  or  recognized  in  many  subsequent  cases 
Talbot  v.  Gay,  18  Pick.  534;  Sigourney  v.  Wetherell,  6  Met.  553 
Whiton  v.  Mears,  11  Met.  563,  564;  Bickford  v.  Gibbs,  8  Cush.  154. 
Parkman  v.  Brewster,  15  Gray  271;  Protection  Ins.  Co.  v.  Davis, 
5  Allen  54,  58.  This  rule  has  been  recognized  for  more  than  seventy 
years,  and  it  is  now  too  late  to  question  it.  When  it  was  first  adopted 
it  was  assumed  in  England  as  well  as  in  this  commonwealth  that 
the  guarantor  of  a  note  had  the  same  right  to  notice  that  an  in- 
dorser  had,  the  only  difference  between  the  two  being  that  in  thel 
case  of  a  guarantor,  notice  could  be  given  at  any  time  before  damag( 
was  sustained,  and  that  damage  from  lack  of  notice  had  to  be 
proved ;  see  Phillips  v.  Astling,  2  Taunt.  206 ;  Van  Wart  v.  Woolley, 


NOTICE   OF   DEFAULT 


293 


3  B.  &  C.  439 ;  and  the  later  case  of  Hitchcock  v.  Humf rey,  5  M.  & 
G  559;  the  law  seems  to  be  otherwise  settled  in  England  to-day; 
see  Walton  v.  Mascall,  13  M.  &  W.  72 ;  but  see  Lindley,  L.  J.,  in 
Carter  v.  White,  25  Ch.  D.  666,  citing  with  approval  Byles  on  Bills 
(12th  ed.),  295,  who  lays  down  the  Massachusetts  rule.  The  weight 
of  authority  is  against  the  Massachusetts  rule;  the  cases  are  col- 
lected in  Ames  Cases  on  Suretyship,  240,  note  1. 

It  has  never  been  decided  that  the  rule  applied  in  Oxford  Bank  v. 
I  [aynes  is  one  of  general  application.  In  Dole  v.  Young,  24  Pick. 
250,  Clark  v.  Remington,  11  Met.  361,  and  Paige  v.  Parker,  8 
Gray  211,  it  was  assumed  that  the  rule  applied  in  case  of  a  general 
guaranty  for  the  payment  of  goods  to  be  subsequently  purchased; 
and  in  Cabot  Bank  v.  Bodman,  11  Gray  134,  it  seems  to  have  been 
assumed  to  be  a  rule  of  general  application.  But  in  none  of  these 
cases  does  the  opinion  rise  higher  than  a  mere  obiter  dictum,  ex- 
cept in  the  case  of  Clark  v.  Remington.  Clark  v.  Remington  was 
the  case  of  a  guaranty  of  goods  to  be  subsequently  purchased 
where  no  notice  of  any  kind  was  given  to  the  guarantor.  The 
guaranty  in  question  in  that  case  was  an  offer,  and  it  is  settled  that 
in  such  a  case  notice  of  the  subsequent  purchase  must  be  given. 
See  Bishop  v.  Eaton,  161  Mass.  496,  and  cases  there  cited.  Clark 
v.  Remington  may  well  stand  on  the  ground  that  in  that  case  no 
notice  of  the  subsequent  purchase  has  been  given,  so  that  the  guar- 
antor is  fully  informed  of  the  details  of  the  debt  which  he  has 
guaranteed,  notice  of  the  principal  debtor's  default  must  also  be 
given. 

It  is  not  necessary  to  consider  now  whether  notice  must  be  given 
to  the  guarantor  in  cases  like  Lennox  v.  Murphy,  171  Mass.  370,  in 
order  to  throw  upon  him  the  duty  of  seeing  that  the  sums  guaran- 
teed by  him  are  paid ;  it  may  be  that  in  case  of  such  a  contingent 
guaranty,  it  is  not  the  duty  of  the  guarantor  to  see  that  the  sums 
guaranteed  are  paid  until  the  contingent  guaranty  has  been  made 
certain  by  notice  stating  what  sums  are  due  and  when  they  are  due, 
although  such  notice  is  not  a  condition  precedent  on_  which  his  lia- 
bility depends.  See  in  this  connection  Hoar,  J.,  in  Whiting  v. 
Stacy,  15  Gray  270. 

However  that  may  be,  there  is  no  case  in  this  commonwealth  in 
which  the  rule  of  Oxford  Bank  v.  Playnes  has  been  enforced,  in-7 
case^the  thing  guaranteed  is  a  debt,  de finite  in  amount  ancLin  time 
of  parent; 'but,  on  the  contrary,  "Chief  Justice  Shaw  said,  with 
reference  to  that  case,  in  delivering  the  opinion  of  the  court  in 
Salisbury  v.  Hale,  12  Pick.  416,  424,  which  involved  the  question 
of  a  guaranty  of  rent:  "Without  deciding  whether  the  doctrines 
of  that  case  can  be  extended  beyond  promissory  notes  and  other 
mercantile  contracts,  we  are  of  opinion,  upon  the  principles  of  that 
case,  noticejn  the  present,  was  not  necessary,"  because  there  had 
been  no"  change  of  circumstances.  ~ 


294  COMMERCIAL    GUARANTIES 

71 

We  are  of  opinion  that  when  the  obligation  of  the  guarantor  is  J 
to  pay  a  definite  sum  at  a  definite  time,  it  is  his  duty  to  see  that 
the  sum  guaranteed  is  paid,  and  that  there  is  no  duty  on  the  creditor 
to  give  notice  to  the  guarantor  of  a  default  in  payment  by  the  prin- 
cipal debtor ;  and  that  if  the  guarantor,  in  violation  of  his  duty,  has, 
slumbered  because  he  supposed  that  in  the  absence  of  a  demand 
by  the  creditor  the  act  guaranteed  had  been  performed  by  the  prin- 
cipal debtor  and  has  suffered  damage  from  so  doing,  he  has  noth- 
ing of  which  he  can  complain  but  his  own  negligence,  and  is  liable 
to  pay  the  sum  which  he  guaranteed  should  be  paid.  -^ 

Exceptions  overruled. 


WM.  TAUSSIG  ET  AL.  v.  SIMON  REID  ET  AL.  ^ 
145  ///.  488,  32  N.  E.  918,  36  Am.  St.  504  (1893). 

Mr.  Justice  Craig  delivered  the  opinion  of  the  court. 

This  is  an  action  brought  by  Reid,  Murdoch  &  Fischer  against 
E.  Kohn  and  Wm.  Taussig,  on  the  following  written  instrument: 
"Reid,  Murdoch  &  Fischer,  Chicago: 

"Chicago,  January  14,  1887. 

"For  value  received,  I  hereby  guarantee  the  prompt  payment  at 
maturity  of  any  indebtedness  owing  to  Reid,  Murdoch  &  Fischer 
by  Mrs.  Mathilda  Zuckerman,  of  370  State  street,  and  214  and  216 
North  Clark  street,  Chicago,  for  goods  purchased,  or  which  may 
be  purchased  hereafter  of  them,  to  the  amount  of  fifteen  hundred 
dollars  ($1,500.00)  with  interest  on  all  the  above  indebtedness,  ac- 
cording to  the  tenor  and  effect  thereof,  at  the  rate  of  eight  per  cent, 
per  annum,  and  I  agree  to  pay  all  costs  or  expenses  paid  or  incurred 
in  collecting  the  same. 

"Signed  at  Chicago,  this  14th  day  of  January,  1887. 

"Witness:    Jos.  Zuckerman. 

"(Signed)         E.  Kohn, 
"(Signed)         Wm.  Taussig." 

In  the  circuit  court  the  plaintiffs  recovered  a  judgment  for 
$1,680.34,  the  amount  named  in  the  instrument,  and  interest  thereon 
from  the  time  the  action  was  brought.  The  judgment,  on  appeal, 
was  affirmed  in  the  appellate  court,  and  for  the  purpose  of  reversing 
the  latter  judgment  this  appeal  was  taken.  It  appears  from  the 
record  that,  immediately  upon  the  execution  and  delivery  of  the 
writing,  Reid,  Murdoch  &  Fischer  commenced  selling  goods  to  Mrs. 
Zuckerman  on  credit,  and  continued  the  sales  until  November  23, 
1887.  Her  indebtedness  to  the  firm  varied  in  amount  from  time  to 
time.  On  the  first  day  of  June,  1887,  she  was  indebted  in  the  sum 
of  $1,762.30.    On  the  1st  of  July,  1887,  $1,958.39.    On  the  1st  of 


NOTICE    OF    DEFAULT 


295 


August,  1887,  $1,925.98.     On  the  1st  of  September,  $2,112.68.    On 
the   1st  of  October,   1887,  $2,342.80.     On  the   1st  of   November,  ' 
1887,  $2,389.51.     On  November  23,  1887,  when  the  account  was 
closed,  $2,714.96. 

Mrs.  Zuckerman  failed  on  the  24th  day  of  November,  1887,  and 
this  action  was  brought  on  the  guaranty  December  9th  following. 
No  notice  was  given  the  defendants  by  Reid,  Murdoch  &  Fischer 
of  the  failure  of  Mrs.  Zuckerman  to  pay  for  the  goods  which  she 
purchased,  and  it  was  insisted  on  the  trial  that  her  insolvency,  and 
the  failure  of  Reid,  Murdoch  &  Fischer  to  give  notice  of  her  de- 
fault in  payment  relieved  the  guarantors  from  liability  on  the  guar- 
anty. But  the  court  held  otherwise,  and  in  the  first  instruction  on 
behalf  of  plaintiffs  the  jury  were  authorized  to  find  for  the  plain- 
tiffs, although  demand  and  notice __of  nonpayment  had  not  been 
established,  and  the  soundness  of  this  ruling  is  the  principal,  and 
indeed  the  only,  question  of  any  importance  presented  by  the  record. 
Whether  notice  of  the  default  of  a  principal  debtor  is  required 
in  order  to  fix  the  liability  of  a  guarantor  on  a  contract  like  the  one 
involved,  is  a  question  upon  which  the  authorities  are  conflicting. 
We  shall  not  attempt  to  review  the  authorities  at  length,  nor  shall 
we  attempt  to  harmonize  the  various  decisions  bearing  upon  the 
question,  but  we  shall  content  ourselves  by  stating  what  we  under- 
stand to  be  the  law  on  the  subject,  as  established  by  the  weight  of 
authority. 

Story  on  Contracts,  vol.  2,  p.  1133,  in  the  discussion  of  the  ques- 
tion, says:     ^Whenever_th,e  undertaking  by  a  guarantor  is  absolute, 
notice  is  unnecessarj^__b_ut  where  it  is  collateral  merely,  notice  must 
be^giyeri_jaatBaT7a^reasonable  time,  otherwise  the  guarantor  will  be 
discKarged,  unless  he  is  not  prejudiced  by  the  want,  of  notice."     In 
-jBaylies  on  Sureties  and  Guarantors,  202,  the  author  says :  "It  may  be 
t/laid  down  as  a  general  rule,  that, in  case  of  an  absolute  guaranty  the 
guarantor  is  not  entitled  to  demand  or  notice  of  nonperformance, 
r  but  where  the  undertaking  is  collateral,   and  not  absolute,  notice 
*  must  be  given  within  a  reasonable  time,  unless  circumstances  exist 
which  will  excuse  the  want  of  notice.     If  the  principal  is  insolvent 

en  the  debt  becomes  due  or  default  is  made,  so  that  no  benefit  J 
could  be  derived  by  the  guarantor  from  the  receipt  of  notice,  no 
notice  is  required." 

Where  the  payee  of  a  promissory  note  or  third  parties  execute 
y.  a  contract  written  on  the  back  of  an  unconditional  promissory  note 
''for  the  payment  of  money  at  a  specified  time,  in  which  they  guar- 
antee the  payment  of  the  promissory  note  at  maturity,  the  holder 
of  the  note  is  under  no  obligation  to  demand  payment  of  the  maker, 
and  on  default  of  payment,  notify  the  guarantors.  The  reason  is 
obvious.  The  contract  of  the  guarantors  is  absolute  and  uncondi- 
tional, and  it  requires  payment  by  the  guarantors  upon  maturity 
of  the  note.     This  rule  is  clearly  laid  down  in  Gage  v.  Mechanics 


3m 
W<l  /b! 

'  mu; 

iT~\„whi 

f  wh« 

m  '■ 


296  COMMERCIAL    GUARANTIES 

National  Bank  of  Chicago,  79  111.  62,  and  is  well  sustained  by  au- 
thority. The  principle  upon  which  this  doctrine  rests  is  that  the 
contract  is  absolute,  and  not  conditional  or  collateral.  But  does  the 
contract  upon  which  this  action  is  brought  rest  upon  the  same  prin- 
ciple, or  is  it  to  be  governed  by  a  different  rule?  Is  the  contract 
in  question  an  absolute  contract,  or  is  it  collateral  or  conditional? 
By  the  terms  of  the  agreement  the  appellant  guaranteed  appellees 
payment  to  the  amount  of  $1,500,  for  goods  purchased  or  for  goods 
which  might  thereafter  be  purchased  of  them  by  Mathilda  Zucker- 
man. 

It  is  not  claimed  that  any  liability  exists  on  account  of  goods  pur- 
chased before  the  execution  of  the  guarantee,  so  that  the  words 
embraced  in  the  guaranty,  "for  goods  purchased,"  has  no  special 
bearing  in  construing  the  agreement.  It  will  be  observed  that  the 
amount  of  the  goods  which  might  be  purchased,  nor  the  time  dur- 
ing which  the  deal  between  Mrs.  Zuckerman  and  appellees  should 
continue,  was  not  mentioned  or  determined.  The  contract  did  not 
compel  Mrs.  Zuckerman  to  purchase  or  appellees  to  sell  a  dollar's 
worth  of  goods.  They  could  deal  with  each  other  as  much  or  as 
little  as  they  might  desire  or  as  they  might  see  proper.  After  the 
guaranty  was  executed,  if  appellees  chose  not  to  sell  Mrs.  Zucker- 
man any  goods,  it  could  not  be  claimed  that  an  absolute  guaranty 
existed,  because  there  was  no  debt  upon  which  it  could  operate 
How  can  a  guaranty  be  absolute  where  it  is  uncertain  whether  a 
debt -will-ever  exist  to  which  it  could  apply?  We  think  it  is  mani-y 
fest  that  the  guaranty  was  not  an  absolute~undertaking,  but,  on  th 
other  hand,  the  contract  in  question  was  a  continuing  guaranty  o 
a  debt  to  be  created  in  the  future,  of  an  indefinite  amount,  depend 
ing  entirely  upon  the  will  of  appellees  and  Mrs.  Zuckerman. 
******* 

Here  the  appellants  were  apprised  when  they  executed  the  guar- 
anty that  it  was  accepted  by  appellees;  no  further  notice  of  ac- 
ceptance was,  therefore,  required.  But  while  the  testimony  dis- 
closed that  Mrs.  Zuckerman  became  insolvent  on  the  24th  day  of 
November,  1887,  no  notice  of  her  default  in  payment  was  furnished 
to  appellants  before  her  failure.  We  think  that  the  decided  weight 
of  authority  establishes  the  rule  that  in  case  of  a  collateral  con- 
tinuing guaranty,  like  the  one  in  question,  reasonable  notice  of  the 
default  of  payment  on  the  part  of  the  principal  debtor  should  be 
given  to  the  guarantor.  And  the  guarantor  will  be  discharged  from 
payment  so  far  as  he  has  sustained  loss  or  damage,  resulting  from 
a  failure  of  the  creditor  to  give  him  such  notice.  Tiedman  on 
Com.  Paper  421.  Cases  may  arise  where  notice  would  result  in  no 
benefit  whatever  to  the  guarantor ;  for  example,  where  the  prin- 
cipal debtor  was  insolvent  when  the  guaranty  was  executed  and 
remained  in  that  condition.     In  such  cases  the  failure  to  give  no- 


NOTICE    OF   DEFAULT  297 

tice  could  result  in  no  loss  to  the  guarantor,  and  could  not  be  relied 
upon  as  a  defense  to  an  action  on  the  guaranty.  But  where  the 
guarantor  may  be  able  to  protect  himself,  notice  of  default  in  pay- 
ment imposes  no  unreasonable  hardship  on  the  creditor,  and  every 
principle  of  commercial  usage  requires  that  it  should  be  given. 
Judgment   rev  e  r  s  e  d .  * 

>3  2  ^ ' 

LOYYK  &  CO.  v.  BECKWITH^ 

53  Ky.  150  (1853). 

Judge  Simpson  delivered  the  opinion  of  the  court. 
This  action  is  founded  upon  a  guaranty  given  by  Jacob  Beckwith 
in  favor  of  J.  B.  Maynard,  by  the  following  instrument  of  writing: 

"Louisville,  April  26,  1849. 

"Mr.  J.  B.  Maynard,  being  about  to  commence  the  retailing  of 
dry  goods  at  Cannelton,  Ind.,  and  desiring  to  open  a  credit  with 
the  firm  of  James  Lowe  &  Co.,  of  the  city  of  Louisville,  I  hereby 
undertake  and  contract  with  said  Lowe  &  Co.  to  become  responsible 
to  them  for  the  amount  of  any  bill  or  bills  of  merchandise  sold  by 
them  to  said  Maynard,  agreeably  to  the  terms  of  sale  agreed  upon 
by  the  parties,  without  requiring  said  Lowe  &  Co.  to  prosecute  suit 
against  said  Maynard  therefor.  Jacob  Beckwith/'' 

The  plaintiffs  averred  in  their  petition,  and  proved  upon  the  trial, 
that  they  accepted  the  defendant's  guaranty  on  the  day  it  was  given, 
and  notified  him  that  they  would  sell  merchandise  to  Maynard  on 
credit,  looking  to  the  guaranty  he  had  given  them  for  indemnity. 
They  also  averred  and  proved  that  on  the  faith  of  said  guaranty 
they  had  sold  merchandise  to  Maynard  from  time  to  time,  between 
its  acceptance  and  the  19th  of  May,  1851,  inclusive,  amounting  in 
the  aggregate  to  several  thousand  dollars,  and  that  the  sum  of  $443 
still  remained  due  to  them  on  account  of  said  sales,  which  Maynard 
had  failed  and  refused  to  pay,  although  the  payment  had  been  de- 
manded of  him,  of  which  the  defendant  had  been  duly  notified. 

The  defendant  admitted  the  execution  of  the  writing  relied  on 
by  the  plaintiffs,  but  insisted  that  according  to  its  terms  he  was 
only  liable  for  the  first  purchases  made  by  Maynard,  which  had 
been  fully  paid  for,  as  appeared  by  the  account  of  sales  and  credits 
which  they  exhibited.  He  also  denied  that  he  had  been  duly  noti- 
fied that  Maynard  was  in  default  in  paying  for  the  goods  sold  to 
him  by  the  plaintiffs,  or  that  they  looked  to  the  defendant,  on 
his  guaranty,  for  the  payment  of  the  balance  due  them. 

*Opinion  on  rehearing' omitted. 

Accord:  Bashford  v.  Shaw,  4  Ohio  St.  263;  Milroy  v.  Quinn,  69  Ind.  406, 
35  Am.  Rep.  227 ;  Walker  v.  Forbes,  25  Ala.  139,  60  Am.  Dec.  498 ;  Clark  v. 
Remington,  52  Mass.  361. 


298  COMMERCIAL   GUARANTIES 

It  appeared  upon  the  trial  that  the  first  bill  of  merchandise  was 
sold  to  Maynard  by  the  plaintiffs  on  the  26th  of  April,  1849,  and 
amounted  to  $536.  Other  sales  were  made  to  him  in  each  of  the 
following  months  during  the  same  year,  and  at  various  times  during 
the  ensuing  year,  and  were  continued  to  be  made  from  time  to 
time  until  the  month  of  May,  1851.  The  sales  were  on  a  credit  of 
either  four  or  six  months.  Partial  payments  were  occasionally 
made  by  Maynard,  whose  purchases  amounted  in  the  aggregate 
during  the  whole  time  to  $4,470.28,  and  the  payments  made  by  him 
to  $4,027.28.  His  payments  on  the  11th  of  September,  1849,  which 
had  been  made  at  different  times,  amounted  to  $536,  the  exact? 
amount  of  the  first  bill  of  merchandise  sold  to  him  by  the  plain4 
tiffs ;  but  the  account,  although  balanced  about  the  end  of  each  year, 
had  never  been  closed  at  any  time,  and  the  balance,  thus  asqerj 
tained  to  be  due,  paid  or  settled.  This  action  was  commenced  in 
October,  1852,  and  it  did  not  appear  that  the  defendant  was  noti- 
fied until  within  a  few  days  before  its  commencement,  and  after 
Maynard  had  become  insolvent,  that  he  was  in  default  in  paying 
for  the  merchandise  he  had  purchased  of  the  plaintiffs,  or  that  they 
considered  the  defendant  liable  for  the  balance  due,  although  the 
last  sales  were  made  in  May,  1851 ;  nor  did  it  appear  that  the  guar-j 


antor  had  been  informed,  at  any  time  during  the  period  withinl 
which  the  sales  were  made,  that  the  plaintiffs  were  continuing  to/ 
make  sales  of  merchandise  to  Maynard  on  the  faith  of  his  guaranty' 


although  he  was  notified  at  the  time  it  was  given  that  it  was  acf- 
ceptcd,  and  would  be  acted  on  by  them. 

Upon  this  state  of  the  case  the  court  instructed  the  jury  to  find 
for  the  defendant  as  in  the  case  of  a  nonsuit,  which  instruction  the 
court  gave,  and  its  correctness  is  the  question  now  presented  for 
our  determination. 

This  instruction  is  attempted  to  be  sustained  on  three  distinct 
grounds :  First,  the  writing  upon  which  the  action  is  based  is  not  a 
continuing  guaranty,  unlimited  in  amount  and  as  to  time,  but  a  guar- 
anty only  of  such  goods  as  plaintiffs  should  sell  Maynard.  Jo  aid  him 
in  commencing  business.  Second,  if  the  guaranty  did  not  expire 
with  the  first  sale  of  $536,  still  the  guarantor  is  discharged  from 
responsibility,  because  he  was  not  informed  of  the  subsequent  sales, 
as  they  were  successively  made.  Third,  that  no  notice  of  the  ex- 
tent of  the  sales,  or  of  the  amount  for  which  the  guarantor  was 
held  responsible,  was  communicated  to  him  within  a  reasonable  time 
after  the  expiration  of  the  credit  upon  which  the  last  sales  were 
made,  nor  was  he  informed  of  the  default  of  Maynard  until  he  had 
become  insolvent,  and  until  a  year  or  more  had  expired  after  the 
debt  became  due,  and  by  this  negligence  of  the  plaintiffs  he  is  dis- 
charged from  all  liability  on  his  guaranty. 

Neither  the  language  nor  the  object  of  the  letter  of  credit  in  this 
case  will  authorize  the  conclusion  that  it  was  intended  and  under- 


NOTICE    OF    DEFAULT  299 

stood  by  the  parties  as  a  limited  guaranty.     The  aid  required  was 
'  not  merely  to  enable  Maynard  to  "commence  business,"  but  he  be- 
ing about  to  commence  business,  desired  to  open  a  credit  with  the 

J  plaintiffs,  and  the  guarantor  agreed  to  become  responsible  for  the 
amount  of  any  bill  or  bills  of  merchandise  sold  by  them  to  him. 

t  The  object  contemplated  was  to  enable  Maynard  to  open  a  credit 
with  the  plaintiffs,  and  to  purchase  from  them,  from  time  to  time, 
any  bill  or  bills  of  merchandise  that  he  thought  necessary  to  the  . 
business  in  which  he  was  about  to  embark.  This  object  could  only 
be  accomplished  by  giving  to  the  guaranty  a  continuing  operation. 
It  contains  no  limitation,  either  as  to  amount  or  time.  The  lan- 
guage used  fairly  admits  of  the  construction,  that  it  was  unlimited 
in  duration,  and  it  was  no  doubt  so  understood  and  acted  upon  by 
the  plaintiffs.     *     *     * 

LAs  this   was  a  continuing  guaranty,   providing   for  a   series   of 
/transactions,  and  the  guarantor  was  notified  of  its  acceptance,  and 

/  the  intention  of  the  plaintiffs  to  act  under  it,  he  must  necessarily 

/  have  understood  that  there  might  be  successive  sales  made,  from 
time  to  time,  according  to  its  terms,  and  he  had  no  right,  therefore, 

I  to  require  that  notice  should  be  given  him  of  each  sale,  as  it 
should  be  made.  In  the  case  of  Douglass  v.  Reynolds,  supra,  7 
Peters'  Rep.  113,  it  was  expressly  decided  that  in  the  case  of  a 
continuing  guaranty  it  was  not  necessary  that  every  successive 
transaction  under  it  should  be  communicated  from  time  to  time  to 
the  guarantor;  see  also,  on  the  same  point,  Wildes  v.  Savage,-  1 
Story  22. 

But  a  more  important  question  arises,  as  to  the  duty  devolving 
upon  the  person  accepting  such  a  guaranty  as  this,  and  giving  credit 
upon  it,  after  the  transactions  have  been  completed,  and  the  debt 
hasT>ecome  due,  and  default  has  been  made  by  the  person  primarily 
liable.  This  question,  we  believe,  is  now  presented  for  the  first 
time  in  this  court.  It  was  decided,  in  the  case  of  Kincheloe  v. 
Holmes,  etc.,  7  B.  Mon.  5,  that  due  notice  of  the  acceptance  of  the 
guaranty  is  necessary,  and  it  was  said  that,  as  such  notice  is  suffi- 
cient to  put  the  guarantor  on  his  guard,  the  court  was  not  prepared 
to  decide  that  the  creditors,  after  giving  such  notice,  would  be 
bound  to  use  greater  diligence  in  demanding  payment  from  the  prin- 
cipal than  a  man  of  ordinary  prudence  would  use  in  his  own  case. 
But,  as  the  question  did  not  directly  arise  in  that  case,  it  was  not 
decided ;  nor  did  the  court  authoritatively  determine  that  the  law 
imposed  upon  the  creditor,  in  such  a  case,  the  exercise  of  any  dili- 
gence whatever. 

The  contract  of  the  guarantor  in  this  case  consisted,  substantially, 
either  in  an  undertaking  to  pay  the  debt,  in  case  the  principal 
debtor  should  fail  to  do  so,  or  in  an  undertaking  that  the  debt 
should  be  paid  by  him.  The  extent  of  the  liability  that  might  arise 
under  the  guarantee  was  indefinite,  and  in  some  degree  optional 
with  the  party  who  was  to  act  under  it.     As  subsequent  events, 


300 


COMMERCIAL    GUARANTIES 


which  were  at  least  partially  under  the  control  of  the  plaintiffs, 
might  determine  the  amount  of  this  liability,  a  knowledge  of  which 
would  be  necessary  to  enable  the  guarantor  to  comply  with  his  con- 
tract, it  might  be  argued  that  this  information  should  have  been 
communicated  to  him  before  he  could  be  considered  in  default ;  but 
even  this  can  not  be  conceded,  inasmuch  as  the  amount  for  which 
he  was  responsible  did  not  rest  exclusively  in  the  knowledge  of  the 
plaintiffs,  but  was  also  known  to  the  person  in  whose   favor  the 
guaranty  was  given,  from  whom  he  could  have  obtained  the  req- 
uisite information.     If,  however,  notice  of  his  liability  was  neces- 
fsary  before  a  cause  of  action  would  accrue  against  the  defendant, 
I  such  a  notice  could  be  given  at  any  time,  and  it  was  given  in  the 
(present  case  before  the  action  was  brought. 

It  is  contended,  however,  that  to  make  the  guarantor  responsible 
for  the  debt,  it  is  incumbent  on  the  plaintiffs  to  show  that  pay- 
ment of  it  by  the  principal  was  demanded,  and  notice  of  his  failure 
to  pay  given  to  the  defendant  within  a  reasonable  time  after  the 
debt  fell  due. 

The  existence  of  such  an  obligation  on  the  part  of  the  person  to 
whom  a  guaranty  is  given  was  recognized  in  the  case  of  Douglass 
v.  Reynolds,  supra,  and  it  was  decided  that  unless  such  demand  was 
made,  and  notice  thereof  given  in  a  reasonable  time  to  the  guar- 
antor, He  would  be  wholly  discharged  from  his  undertaking.  The 
same  case  was  subsequently  brought  before  the  Supreme  Court  of 
the  United  States  (12  Peters  497),  and,  by  reference  to  the  opin- 
ion then  delivered,  it  will  be  seen  that  a  modified  view  of  this 
question  was  taken,  and  instead  of  deciding  that  a  demand  and  no- 
tice of  the  default  constituted  an  essential  ingredient  in  the  case 
of  the  plaintiff,  in  a  suit  brought  on  a  guaranty  it  was  held  that  a 
failure  to  do  so  was  mere  matter  of  defense,  to  be  set  up  and  re- 
lied upon  by  the  defendant,  but  would  be  available  as  such  only  to 
the  extent  of  the  injury  he  had  sustained  by  the  omission,  and  be 
wholly  immaterial  where  no  injury  had  resulted  from  it.  The  doc- 
trine upon  this  point,  in  this  modified  form,  has  been  recognized 
and  followed  by  the  Supreme  Courts  of  several  of  the  states.  Howe 
v.  Nichols,  22  Maine  175 ;  Smith  v.  Bainbridge,  6  Blackf .  12 ;  Sal- 
isbury v.  Hale,  16  Pick.  424. 

By  other  courts  this  rule  has  been  altogether  denied,  and  it  has 
been  held,  "that  where  the  undertaking  is  for  the  performance  of 
a  third  party,  it  is  sufficient  to  establish  the  existence  of  a  default 
by  the  latter,  which  necessarily  involves  a  breach  of  the  guaranty, 
and  that,  as  no  evidence  of  demand  would  be  requisite  for  that  pur- 
pose were  the  suit  against  the  principal,  the  same  rule  must  prevail 
where  it  is  against  the  guarantor."  Allen  v.  Rightmere,  20  John. 
365 ;  Douglass  v.  Howland,  24  Wend.  35;  Jones  v.  Train,  11  Verm. 
444;  Peck  v.  Barrey,  13  Verm.  93. 


NOTICE  OF  DEFAULT  301 

Considering  the  great  diversity  of  opinion  that  exists,  we  feel  at 
liberty  to  adopt  such  a  rule  on  this  subject  as  will  be  just  in  its 
operation,  and  of  easy  practical  application,  especially  in  relation 
to  such  guaranties  as  the  one  sued  upon.  The  rule  laid  down  in 
the  case  of  Douglass  v.  Reynolds,  and  which  has  been  followed  in 
its  modified  form  by  the  courts  of  the  several  states,  seems  to  rest 
upon  a  peculiar  rule  of  commercial  jurisprudence.  Its  application 
is  difficult  and  uncertain  in  its  results,  involving  as  it  does  not  only 
the  question  of  ''reasonable  time,"  in  each  case,  but  also  the  addi- 
tional question  of  the  extent  of  injury  that  has  been  sustained  by 
the  guarantor  by  the  failure  to  make  a  demand  on  the  principal 
debtor,  and  in  case  of  his  default  to  give  notice  of  it.  In  what 
manner  is  the  injury  to  be  ascertained  ?  Must  it  be  determined  by 
the  condition  of  the  principal  debtor,  at  the  time  performance  is  to 
be  made  by  him,  or  within  a  reasonable  time  thereafter,  and  if  he 
were  then  insolvent  does  the  presumption  arise  that  no  injury  has 
been  sustained  by  the  guarantor,  but  that,  if  he  were  then  solvent, 
a  contrary  presumption  is  to  be  indulged  ?  Or  must  an  additional 
inquiry  be  instituted  in  order  to  ascertain  whether  an  indemnity 
could  have  been  obtained  from  the  principal  debtor,  had  due  notice 
of  his  default  been  given?  Even  if  solvent  he  might  have  been 
unwilling  to  have  given  an  indemnity,  and  as,  in  that  event,  the 
guarantor  could  not  have  been  able  to  secure  himself  against  loss, 
he  would  not  have  sustained  any  actual  damage  by  the  failure  to 
make  a  demand,  and  to  give  notice  of  the  default.  This  rule,  if 
unexceptionable  in  every  other  respect,  would  certainly  be  very  in- 
convenient, difficult,  and  impracticable  in  its  application. 

Where  the  meaning  of  a  guaranty  is  assumed  to  be  that  a  third 
person  shall  pay  a  debt,  or  where  it  is,  that  in  case  of  a  default  on 
the  part  of  the  latter  the  guarantor  will  undertake  the  perform- 
ance himself,  and  the  guaranty  sued  upon  in  this  case,  imports, 
undeniably,  one  or  the  other  of  these  undertakings,  then  there  does 
not  seem  to  be,  according  to  the  well-established  principles  of  the 
common  law,  any  obligation  upon  the  creditor  to  demand  payment 
of  the  debtor  primarily  liable,  but  it  is  the  duty  of  the  guarantor, 
by  inquiring  of  his  principal,  to  ascertain  whether  payment  has  been 
made,  and  if  not  to  make  it  himself,  in  pursuance  of  his  contract 
to  that  effect.  Douglass  v.  Howland,  24  Wend.  35 ;  Oxley  v. 
Young,  2  H.  Black.  613. 

On  the  other  hand,  where  the  meaning  of  a  guaranty  is,  that  the 
debt  created  under  it  will  be  a  good  debt,  or  that  the  party  in  whose 
favor  it  is  given  will  be  able  to  comply  with  his  engagements  when 
they  fall  due,  or  that  the  person  to  whom  the  guaranty  has  been 
addressed  will  be  safe,  in  the  business  sense  of  the  term,  in  giving 
the  credit  referred  to,  there  can  be  no  breach  of  a  collateral  under- 
taking of  this  nature,  until  it  is  shown  that  the  debt  created  under 


302  COMMERCIAL    GUARANTIES 

such  a  guaranty  could  not,  when  it  fell  due,  be  collected,  the  party 
trusted  was  insolvent,  or  the  creditor  unable,  by  the  use  of  ordi- 
nary diligence,  to  obtain  the  payment  of  the  debt. 

Upon  such  a  guaranty  as  the  present,  notice  to  the  guarantor  of 
its  acceptance  and  an  intention  to  act  under  it  in  pursuance  of  its 
terms  is  necessary,  because  it  is  in  the  nature  of  a  proposition, 
which  the  party  addressed  may  accept  or  reject  at  his  option,  and 
until  accepted  does  not  constitute  a  contract  between  the  parties./ 
But  no  additional  obligation  devolves  upon  the-cr£djtor.  The  guar- 
antor, by  applying  to  the  party  in  whose  favor  the  guaranty  has 
been  given,  can  obtain  information  as  to  the  extent  of  the  liability 
incurred  under  it,  and  also  whether  such  liability  has  been  dis- 
charged or  still  exists ;  and  if  he  has  undertaken  that  the  debt  shall 
be  paid  by  the  debtor  when  it  falls  due,  its  nonpayment  by  him 
necessarily  involves  a  breach  of  this  undertaking ;  or  if  his  contract  i 
be  that  he  will  pay  it  himself  in  the  event  of  its  nonpayment  by  the  ; 
debtor,  the  default  of  the  latter  renders  his  undertaking  absolute,/ 
and  he  becomes  immediately  liable  to  an  action,  inasmuch  as  it  is 
his  duty,  according  to  the  very  terms  of  his  contract,  to  pay  the  debt 
without  demand  or  notice.  This  will  form  a  safe  and  sound  rule 
upon  the  subject,  and  by  its  practical  operation  render  a  guarantee 
of  this  description,  when  accepted  and  acted  upon,  of  some  value 
to  the  party  who  has  dealt  upon  the  faith  of  it,  and  trusted  to  it 
to  secure  the  payment  of  his  debt. 

The  result  of  these  views  is,  that  none  of  the  grounds  relied  upon 
are  sufficient  to  sustain  the  correctness  of  the  instruction  given  to) 
the   jury   by   the   court  below.      Wherefore,   the    judgment    is    re-V^/J 
versed,  and  the  cause  remanded  for  a  new  trial,  and  further  pro*  I 
ceedings  consistent  with  the  opinion. 


SECTION  9.   REVOCATION  OF  GUARANTY 

E.  D.  JORDAN  ET  AL.  v.  E.  DOBBINS,  ADMINISTRATRIX' 

122  Mass.  168,  23  Am.  Rep.  305  (1877). 

Contract  upon  the  following  guarantee:  "For  value  received, 
the  receipt  whereof  is  hereby  acknowledged,  the  undersigned  does 
hereby  guarantee  to  Jordan,  Marsh  &  Co.  the  prompt  payment  by 
George  E.  Moore  to  Jordan,  Marsh  &  Co.  at  maturity,  of  all  sums 
of  money  and  debts  which  he  may  hereafter  owe  Jordan,  Marsh 
&  Co.  for  merchandise,  which  they  may  from  time  to  time  sell  to 
him,  whether  such  debts  be  on  book  account,  by  note,  draft,  or 
otherwise,  and  also  any  and  all  renewals  of  any  such  debt.  The 
undersigned  shall  not  be  compelled  to  pay  on  this  guarantee  a  sum 
exceeding  $1,000,  but  this  guarantee  shall  be  a  continuing  guar- 


REVOCATION    OF   GUARANTY  303 

antee,  and  apply  to  and  be  available  to  said  Jordan,  Marsh  &  Co. 
jfor  all  sales  of  merchandise  they  may  make  to  said  George  E. 
'Moore  until  written  notice  shall  have  been  given  by  the  undersigned 
to  said  Jordan,  Marsh  &  Co.  and  received  by  them,  that  it  shall 
not  apply  to  future  purchases.  Notice  of  the  acceptance  of  this 
guarantee  and  of  sales  under  the  same,  and  demand  upon  said 
George  E.  Moore  for  payment,  and  notice  to  me  of  nonpayment, 
is  hereby  waived.  In  witness  whereof  I,  the  undersigned,  have 
hereunto  set  my  hand  and  seal  this  twenty-eighth  day  of  February, 
a.  d.  1873.  William  Dobbins.  (Seal.)"  Annexed  to  the  declara- 
tion was  an  account  of  goods  sold  to  Moore. 

The  case  was  submitted  to  the  superior  court  and,  after  judg- 
ment for  the  plaintiffs,  to  this  court,  on  appeal,  on  an  agreed  state- 
ment of  facts  in  substance  as  follows: 

The  plaintiffs  are  partners  under  the  firm  name  of  Jordan, 
Marsh  &  Co.  and  the  defendant  is  the  duly  appointed  administra- 
trix of  the  estate  of  William  Dobbins. 

William  Dobbins,  on  February  28,  1873,  executed  and  delivered 
to  the  plaintiffs  the  above  written  contract  of  guarantee.  The  plain- 
tiffs thereafter  relying  on  this  contract  sold  to  said  Moore  the  goods 
mentioned  in  the  account  annexed  to  the  declaration,  at  the  times 
and  for  the  prices  given  in  said  account,  all  of  the  goods  having 
been  sold  and  delivered  to  Moore  between  January  16  and  May 
28,  1874.  All  the  amounts  claimed  were  due  from  Moore,  and 
payment  was  duly  demanded  of  him  and  of  the  defendant  before 
the  date  of  the  writ.  Other  goods  had  been  sold  by  the  plaintiffs 
to  Moore  between  the  date  of  the  guarantee  and  the  first  date  men- 
tioned in  the  account,  but  these  had  been  paid  for. 

Wjlliam  Dobbins  died  on  August  6,  1873,  and  the  defendant  was 
appointed  administratrix  of  his  estate  on  September  2,  1873.  The 
plaintiffs  had  no  notice  of  his  death  until  after  the  last  of  the  goods 
mentioned  in  the  account  had  been  sold  to  Moore. 

If  upon  these  facts  the  defendant  was  liable,  judgment  was  to 
be  entered  for  the  plaintiffs  for  the  amount  claimed ;  otherwise, 
judgment  for  the  defendant. 

Morton,  J. :  An  agreement  to  guarantee  the  payment  by  an- 
other of  goods  to  be  sold  in  the  future,  not  founded  upon  any  pres- 
ent consideration  passing  to  the  guarantor,  is  a  contract  of  a  pe- 
culiar character.  Until  it  is  acted  upon,  it  imposes  no  obligation 
and  creates  no  liability  of  the  guarantor.  After  it  is  acted  upon, 
the  sale  of  the  goods  upon  the  credit  of  the  guarantee  is  the  only 
consideration  for  the  conditional  promise  of  the  guarantor  to  pay 
for  them. 

The  agreement  which  the  guarantor  makes  with  the  person  re- 
ceiving the  guarantee  is  not  that  I  now  become  liable  to  you  for 
anything,  but  that  if  you  sell  goods  to  a  third  person,  I  will  then 
become  liable  to  pay  for  them  if  such  a  third  person  does  not.     It 


304  COMMERCIAL    GUARANTIES 

is  of  the  nature  of  an  authority  to  sell  goods  upon  the  credit  of 
the  guarantor,  rather  than  of  a  contract  which  can  not  be  rescinded 
except  by  mutual  consent.     Thus  such  a  guarantee  is  revocable  by/, 
the  guarantor  at  any  time  before  it  is  acted  upon. 

In  Offord  v.  Davies,  12  C.  B.  (N.  S.)  748,  the  guarantee  was  of 
the  due  payment  for  the  space  of  twelve  months  of  bills  to  be  dis- 
counted, and  the  court  held  that  the  guaiantor  might  revoke  it  at 
any  time  within  the  twelve  months,  and  that  the  plaintiff  could  not 
recover  for  bills  discounted  after  such  revocation.  The  ground 
of  the  decision  was  that  the  defendant's  promise  by  itself  created 
no  obligation,  but  was  in  the  nature  of  a  proposal  which  might  be 
revoked  at  any  time  before  it  was  acted  upon. 

Such  being  the  nature  of  a  guarantee,  we  are  of  opinion  that  the 
death  of  the  guarantor  operates  as  a  revocation  of  it,  and  that  the. 
person  holding  it  can  not  recover  against  his  executor  or  admin- 
istrator  for  goods  sold  after  the  death.  Death  terminates  the 
power  of  the  deceased  to  act,  and  revokes  any  authority  or  license  \ 
he  may  have  given,  if  it  has  not  been  executed  or  acted  uporU  His 
estate  is  held  upon  any  contract  upon  which  a  liability  exists  at  the 
time  of  his  death,  although  it  may  depend  upon  future  contin- 
gencies. But  it  is  not  held  for  a  liability  which  is  created  after 
his  death,  by  the  exercise  of  a  power  or  authority  which  he  might 
at  any  time  revoke. 

Applying  these  principles*  to  the  case  at  bar,  it  follows  that  the 
defendant  is  entitled  to  judgment.  The  guarantee  is  carefully 
'drawn,  but  it  is  in  its  nature  nothing  more  than  a  simple  guarantee 
for  a  proposed  sale  of  goods.  The  provision  that  it  shall  continue 
until  written  notice  is.  given  by  the  guarantor  that  it  shall  not  apply 
to  future  purchases,  affects  the  mode  in  which  the  guarantor  might 
exercise  his  right  to  revoke  it,  but  it  can  not  prevent  its  revocation 
by  his  death.  The  fact  that  the  instrument  is  under  seal  can  not 
change  its  nature  or  construction.  No  liability  existed  under  it, 
against  the  guarantor  at  the  time  of  his  death,  but  the  goods  for/ 
which  the  plaintiffs  seek  to  recover  were  all  sold  afterward.  ' 

We  are  not  impressed  by  the  plaintiff's  argument  that  it  is  in- 
equitable to  throw  the  loss  upon  them.  It  is  no  hardship  to  require 
traders,  whose  business  it  is  to  deal  in  goods,  to  exercise  diligence 
so  far  as  to  ascertain  whether  a  person  upon  whose  credit  they  are 
selling  is  living. 

The  decision  in  Bradbury  v.  Morgan,  1  Hurl.  &  C.  249,  upon 
which  the  plaintiffs  rely,  was  rested  upon  reasoning  which  appears 
to  us  to  be  unsatisfactory  and  inconsistent  with  the  opinion  of  the 
same  court  a  year  before,  in  Westhead  v.  Sproson,  6  H.  &  N.  728, 
and  with  the  decision  in  Offord  v.  Davies,  ubi  supra,  at  the  argu- 
ment of  which  Bradbury  v.  Morgan  was  cited ;  and  it  has  not  since 
been  treated  as  settling  the  law  in  England.  Harris  v.  Fawcett, 
L.  R.  15  Eq.  311,  8  Ch.  866.     The  reasons  of  the  similar  decision 


305 


REVOCATION    OF    GUARANTY 

in  Bank  of  South  Carolina  v.  Knotts,   10  Rich.   543,  are  open  to 
the  same  objections. 

Judgment  for  the  defendant. 

Accord:   Aitken,  Son  &  Co.  v.  Lang,  106  Ky.  652,  51  S.  W.  154,  90  Am.  St. 
263. 


COULTHART  v.  CLEMENTSON  AND  ANOTHER- 

5  Q.  B.  Div.  42  (1879). 

Bowen,  J. :     This  is  an  action  brought  by  a  bank  upon  a  contin- 
uing guarantee  against  the  executor  of  a  deceased  guarantor. 

Messrs.  E.  &  J.  Clementson,  cotton  brokers  and  spinners  in  the 
county  of  Chester,  had  a  banking  account  with  the  bank  of  which 
the  plaintiff  is  the  registered  public  officer.  In  the  year  1867  the 
bank  required  security  for  the  advances  which  were  likely,  to  be 
made  to  Messrs.  E.  &  J.  Clementson,  and  on  the  24th  of  August, 
1867,  a  written  guarantee  was  executed  by  Nathaniel  Lawton,  the 
deceased,  and  the  defendant  Joseph  M.  Clementson,  who  is  now  . 
Nathaniel  Lawton's  executor   (and  sued  as  such). 

The  material  part  of  the  guarantee  is  as  follows: 
"We,  the  undersigned,  Joseph  Moxom  Clementson,  of  Dukin- 
field,  in  the  county  of  Chester,  cotton-spinner,  and  Nathaniel  Law- 
ton,  of  Micklehurst,  flannel  manufacturer,  do  hereby  jointly  and 
severally  undertake  and  agree  to  guarantee  to  the  proprietors  of 
or  partners  in  the  said  banking  copartnership  for  the  time  being 
the  due  and  punctual  payment  when  required  of  all  such  sums  of 
money  as  may  have  been,  or  may  be  from  time  to  time,  advanced 
or  paid  by  or  from  the  said  banking  copartnership,  or  which  the 
same  copartnership  may  have  already  paid,  or  become  liable  to  pay, 
or  may  hereafter  pay  or  become  liable  to  pay  for  or  on  account  of 
the  said  Edward  and  John  Clementson,  or _  their  order,  on  any  ac- 
count whatsoever,  with  interest,  commission,  and  other  banking 
charges  upon  such  sums.  *  *  *  And  we  jointly  and  severally 
further  agree  as  follows,  namely,  that  this  guarantee  or  engagement 
shall  be  considered  a  continuing  guarantee,  and  shall  not  be  with- 
drawn^Jiu±_shall  continue  in  full  force  until  three  months  after 
notic£_te-the  manager  of  the  said  banking  copartnership  in  Ash- 
ton-under-Lyne  in  writing  under  our  hands  of  our  intention  to  dis- 
continue or  determine  the  same." 

Advances  were  duly  made  by  the  bank  under  this  guarantee  down 
to  the  death  of  the  testator,  Nathaniel  Lawton,  on  the  19th  of  De- 
cember, 1875,  at  which  date  the  firm  of  Messrs.  E.  &  J.  Clementson 
were  considerably  indebted  to  the  bank.     It  was  admitted,  how- 
20— De  Witt. 


306  COMMERCIAL    GUARANTIES 

ever,  that  sufficient  sums  of  money  after  notice  of  the  death  had 
been  paid  into  the  account,  and  generally  appropriated  to  the  cur- 
rent account,  to  cover  any  balance  which  was  in  fact  owing  at  the 
date  either  of  the  death  or  of  such  notice.  Upon  the  other  hand, 
if  the  guarantee  was  not  determined  in  law  by  death  or  notice  of 
the  death  of  the  testator,  it  was  admitted  that  the  bank,  who  con- 
tinued their  advances  up  to  May,  1878,  to  the  firm  of  E.  &  J. 
Clementson,  were  entitled  to  recover  under  this  guarantee  a  large 
sum  of  £3,000,  or  thereabouts,  which,  in  case  of  difference,  is  to  be 
settled  hereafter  by  a  referee. 

The  cause  was  tried  before  myself  and  a  special  jury  at  Liver- 
pool, when  it  was  agreed  that  the  jury  should  be  discharged,  and 
that  the  court  should  have  power  to  draw  all  reasonable  inferences 
of  fact. 

The  evidence  as  to  what  had  passed  between  the  bank  and  the 
defendant  as  Nathaniel  Lawton's  executor  after  Nathaniel  Lawton's 
death  is  not  very  clear.  From  a  feeling  of  mutual  courtesy  the  par- 
ties refrained  from  cross-examination  of  one  another  at  the  trial. 

It  appeared  that  the  bank  knew  of  the_^kal±L-.Qi_^lr^LawJxin^but 
had  received  no  written  notice  of  it  addressed  speclaTlvto  them- 
selves.  On  the  12th  of  February,  1876,  however,  the  defendant  as 
executor  had  published  in  the  proper  newspapers  advertisements 
under  22  &  23  Vict.,  c.  35,  requiring  the  creditors  of  the  deceased 
Nathaniel  Lawton  to  send  in  particulars  of  claims  to  the  solicitors 
of  the  executors  on  or  before  the  14th  of  May,  1876.  The  bank 
and  their  officers  were  cognizant  of  this  advertisement,  as  well  as 
of  Nathaniel  Lawton's  death. 

Under  the  testator's  will  one-third  of  his  estate  was  to  be  in 
trust  for  the  children  of  the  testator's  sister  Sarah,  who  should  at- 
tain twenty-one  years,  in  equal  shares ;  one-third  for  the  children 
of  his  deceased  brother,  John  Lawton,  who  should  attain  twenty- 
one,  and  the  remaining  one-third  to  the  brother  of  the  testator,  M. 
H.  Lawton.  Some  of  the  children  were  minors.  M.  H.  Lawton, 
before  any  claim  made  by  the  bank,  got  his  share  and  spent  it. 

It  was  admitted  that  the  bank  knew  who  were  the  executors,  and 
that,  without  knowing  the  terms  of  the  will,  the  bank  knew  that  the 
estate  was  going,  one-third  of  it  to  the  testator's  brother,  and  two- 
thirds  to  the  children  of  the  testator's  brother  and  sister,  some  of 
whom  were  infants. 

The  defendant,  who  was  a  brother  of  the  partners  in  the  guar- 
anteed firm,  Messrs.  E.  &  J.  Clementson,  had  become  liable  to  the 
bank  as  a  guarantor  jointly  and  severally  with  Nathaniel  Lawton 
under  the  guarantee  in  question.  He  called  at  the  bank  shortly 
after  the  appearance  of  the  advertisements,  and  saw  the  manager, 
Mr.  Coulthart.  The  following  is  the  account  given  by  the  defend- 
ant of  the  interview:    "I  went  to  the  bank  to  see  if  they  could  ad- 


REVOCATION    OF    GUARANTY  307 

vance  some  money  on  a  large  public  building,  the  Conservative 
Hall,  and  Mr.  Coulthart  agreed  to  do  so.  Then  he  said,  'I  see  by 
the  notice  in  the  paper  that  your  brother-in-law  is  dead.  Do  you 
know  that  you  are  responsible  for  £3,000?'  And  I  was  not  aware 
of  it,  but  was  quite  agreeable  to  be  so,  knowing  my  brother  to  be 
in  good  circumstances.  He  asked  me  how  they  were  doing.  I  told 
him  I  knew  all  their  affairs,  and  told  him  they  were  doing  as  well 
as  they  could  be  doing  at  the  time.  That  is  all  that  passed,  to  the 
best  of  my  recollection.  We  should  never  have  paid  the  share 
out  if  we  had  thought  it  was  subject  to  liability." 

The  defendant  was  not  cross-examined,  but  it  was  stated  on  be- 
half of  the  bank  that  Mr.  Coulthart's  recollection  of  the  conversa- 
tion differed  from  the  defendant's,  and  by  consent  a  written  mem- 
orandum of  the  interview  made  by  Mr.  Coulthart  at  the  time  was 
put  in  as  containing  the  substance  of  the  evidence  which  Mr.  Coul- 
thart was  prepared  to  give,  and  was  to  be  taken  as  if  he  had  ac- 
tually deposed  to  it. 

The  memorandum  was  as  follows : 

"Mr.  Clementson  called,  and  said  he  would  sign  a  new  letter  of 
guarantee  for  £4,000  or  allow  the  existing  ones  to  continue,  as  might 
be  most  agreeable  to  the  directors." 

In  May,  1878,  the  guarantee  firm,  Messrs.  E.  &  J.  Clementson, 
fell,  as  I  have  stated,  into  difficulties.  The  bank  to  whom  they  were 
indebted  heavily  for  advances,  exceeding  the  amount  of  the  guar- 
antee, claimed  under  the  guarantee  to  be  repaid  in  the  same  by  the 
defendant  as  executor  of  the  testator,  and  brought  this  action. 

For  the  defendant  it  was  contended  that  the  testator's  estate  was 
not  liable  for  any  advances  made  after  the  testator's  death,  or,  at 
all  events,  after  the  bank  received  notice  of  his  death.  For  the 
bank  it  was  argued  that  |no  notice  was  given  which  was  equivalent 
to  a  notice  of  the  withdrawal  of  the  guarantee,  and  that  the  proper 
inference  to  be  drawn  from  these  facts  was  that  the  bank  had  a 
right  to  and  did  still  suppose  that  the  guarantee  was  to  continue. 

If  it  were  established  that,  after  the  death  of  the  testator  the 
parties  had  dealt  together  on  the  footing  that  the  guarantee  was  at 
an  end,  the  case  of  Harris  v.  Fawcett,  Law  Rep.  15  Eq.  311;  8 
Ch.  866,  would  apply,  and  the  bank  would  not  be  liable.  But  I 
do  not  decide  this  case  on  that  ground,  though  I  am  not  convinced, 
on  the  present  materials  alone,  that  the  bank  (defendants?)  may 
not,  after  the  testator's  death,  have  been  looking  to  the  defendant's 
liability  as  joint  and  several  guarantor  on  the  guarantee,  and  have 
considered  the  guarantee  determined  as  regards  the  testator  and  his 
estate. 

It  is  possible,  on  the  other  hand,  that  the  executor  himself  sup- 
posed the  guarantee  to  be  at  an  end,  while  the  bank  entertained  no 
definite  opinion  on  the  subject.     It  would  be  difficult  for  me  to  ex- 


308  COMMERCIAL    GUARANTIES 

press  any  clear  view  about  the  matter,  as  the  evidence  leaves  me  still 
in  some  doubt  about  it.  It  is  not  necessary,  if  my  judgment  be 
well  founded,  to  decide  the  point. 

I  am  of  opinion  that  the  notice  with  which  the  bank  in  the  pres- 
ent case  was  affected  amounted  to  a  discontinuance,  so  far  as  fu- 
ture advances  were  concerned,  of  the  guarantee.  A  guarantee  like 
the  present  is  not  a  mere  mandate  or  authority  revoked  ipso  facto 
by  the  death  of  the  guarantor.  It  is  a  contract,  and  the  question 
from  what  time  and  on  what  notice  it  ceases  to  cover  advances  is  a 
question  of  construction  of  the  contract  itself.  In  the  case  of  such 
continuing  guarantees  as  the  present,  it  has  long  been  understood 
that  they  are  liable,  in  the  absence  of  anything  in  the  guarantee  to 
the  contrary,  to  be  withdrawn  on  notice.  Various  explanations 
have  been  offered  of  this  reasonable,  though  implied,  limitation. 
The  guarantee,  it  has  been  said,  is  divisible  as  to  each  advance, 
and  ripens  as  to  each  advance  into  an  irrevocable  promise  or  guar- 
antee only  when  the  advance  is  made.  This  explanation  has  re- 
ceived the  sanction  of  the  Court  of  Common  Pleas  in  the  case  of 
Offord  v.  Davies,  12  C.  B.  (N.  S.)  748;  31  L.  J.  (N.  S.)  (C.  P.) 
319.  Whether  the  explanation  be  the  true  one  or  not,  it  is  now 
established  by  authority  that  such  continuing  guarantees  can  be 
withdrawn,  on  notice  during  the  lifetime  of  the  guarantor,  and  a 
limitation  to  that  effect  must  be  read,  so  to  speak,  into  the  con- 
tract. But  what  is  to  happen  on  his  death?  Is  the  guarantee  irre- 
vocable and  to  go  on  forever?  It  would  be  absurd  to  refuse  to 
read  into  the  lines  of  the  contract  in  order  to  protect  the  dead 
man's  estate  a  limitation  which  is  read  into  it  to  protect  him  while 
he  is  alive.  On  the  argument  of  the  present  case  it  was  virtually 
conceded  that  the  provision  as  to  three  months'  notice  relating  only 
to  the  guarantor's  life,  and  there  being  no  corresponding  provision 
as  to  the  notice  to  be  given  on  his  death,  the  guarantee  could  be 
legally  determined  at  any  time  after  the  guarantor's  death  by  a 
/I  proper  notice  to  that  effect.  But  there  remains  the  question  Iwhai. 
is  the  proper  notice  to  be  given.  To  answer  this  question  wemiust 
consider  the  change  which  the  guarantor's  death  has  effected  in  the 
situation.  The  notice  can  not  any  longer  be  given  by  the  guar- 
antor. He  is  dead.  The  executor  of  his  will  is  guardian  of  his 
estate,  and  if  notice  is  to  be  given  by  any  one,  the  executor  would 
seem  the  person  to  give  it.  But  must  the  executor  give  special  no- 
tice that  the  guarantee  is  withdrawn  ;  or  is  it  not  enough  that  the 
bank  should  be  Avarned  of  the  death  of  the  testator  and  the  devolu- 
tion of  his  estate  to  others?  In  many  cases  the  executor  has  no  op- 
tion to  elect  to  continue  the  guarantee.  Surely  it  would  in  such  cases 
be  idle  to  insist  on  special  forms  of  withdrawal  of  a  guarantee 
which  nobody  has  a  right  to  continue.  Notice  of  the  death  and 
of  the  existence  of  a  will  is  notice  of  the  existence  of  trusts  which 
may  be  incompatible  with  the  continuance  of  the  guarantee.     If,  in- 


REVOCATION    OF   GUARANTY  309 

deed,  under  the  testator's  will,  the  executor  has  the  option  of  con- 
tinuing the  guarantee,  then  from  the  absence  of  any  specific  notice 
of  withdrawal,  the  bank  may,  perhaps,  in  spite  of  notice  of  the 
death,  properly  assume,  as  against  the  estate,  that  the  guarantee  is 
not  to  be  determined.  But  if  the  executor  has  no  option  of  the  sort, 
then,  in  my  opinion,  the  notice  of  the  death  of  the  testator  and  of 
the  existence  of  a  will  is  constructive  notice  of  the  determination 
as  to  future  advances  of  the  guarantee.  I  The  bank  from  that  mo- 
ment is  aware  that  the  person  who  could  during  his  lifetime  have 
discontinued  the  guarantee  by  notice  can  not  any  longer  be  a  giver 
of  notices ;  that  his  estate  has  passed  to  others  who  have  trusts  to 
fulfil,  and  it  is  easy  for  them  to  ascertain  what  those  trusts  are. 

(If  these  trusts  do  not  enable  the  executor  to  continue  the  guar- 
antee, then  the  bank  has  constructive  notice  that  the  guarantee  is 
withdrawn.  If,  indeed,  the  contracting  parties  desire  that  on  the 
death  of  the  guarantor  a  special  notice  shall  be  necessary  to  de- 
termine the  guarantee,  they  can  so  provide  in  the  guarantee  itself ; 
and  such  a  provision  will,  of  course,  bind  the  estate.  In  re  Sil- 
vester, '95,  1  Ch.  573,  the  parties  did  so  provide,  and  it  was  accord- 
ingly adjudged  that  the  estate  of  the  deceased  surety  continues 
liable  on  a  bond  to  secure  the  repayment  of  successive  advances, 
although  the  advances  were  made  after  knowledge  of  the  surety's 
death.  Romer,  J.,  said,  p.  576:  "I  think  that  on  such  a  contract 
as  this  the  plaintiffs  were  entitled  to  rely  on  the  express  provisions 
of  the  contract  with  them,  and  were  not  bound  to  take  the  notice 
of  the  obligor's  death  as  a  notice  from  his  executors  to  determine 
the  liability.  The  proviso  freed  the  plaintiffs  from  being  bound 
by  any  implied  notice  of  or  being  bound  to  make  inquiry  as  to 
whether  there  would  be  any  breach  of  trust  on  the  part  of  the  exec- 
utors in  not  giving  notice  to  determine  the  liability."  See  also 
Hecht  v.  Weaver,  34  Red.  R.  111.  Ed.  Here  there  is  no  such 
provision. 

Judgmen£_will,  therefore,  be  entered  for  Jhe_  defendants,  with 
costs. 

Judgment  for  the  defendants. 

ESTATE  OF  MICHAEL  RAPP  v.  THE  PHCENIX  INSUR-_ 
ANCE  COMPANY 


113  111.  390,  55  Am.  Rep.  427  (1885). 


This  is  an  appeal  from  the  appellate  court  for  the  Third  district, 
affirming  an  order  of  the  circuit  court  of  Morgan  county,  allowing 
a  claim  of  $188.90  against  the  estate  of  M.  Rapp,  deceased,  in  fa- 
vor of  the  Phoenix  Insurance  Company.  The  executors  of  Rapp 
bring  the  case  here,  on  a  certificate  of  the  judges  of  the  appellate 


310  COMMERCIAL    GUARANTIES 

court  that  it  involves  important  questions  of  law  which  should  be 
passed  upon  by  this  court. 

The  foundation  of  the  claim  thus  allowed  is  the  following  bond : 

"Know  all  men  by  these  presents,  that  I,  Joseph  B.  Booker  and 
Albert  H.  Brace,  of  the  town  of  Jacksonville,  county  of  Morgan, 
and  state  of  Illinois,  as  principals,  and  M.  Rapp,  of  the  town  of 
Jacksonville,  county  of  Morgan,  and  state  of  Illinois,  as  surety, 
are  firmly  held  and  bound  to  the  Phoenix  Insurance  Company,  a 
corporation  incorporated  by  the  legislature  of  Connecticut,  and 
located  at  Hartford,  and  state  of  Connecticut,  in  the  sum  of  $1,000, 
to  be  paid  unto  their  certain  attorneys  or  assigns,  to  which  pay- 
ment, well  and  truly  to  be  made,  we  jointly  and  severally  bind  our- 
selves, our  heirs,  executors  and  administrators^  firmly  to  these 
presents. 

"Sealed  with  our  seals,  and  subscribed  at  Jacksonville,  this  28th 
day  of   December,   1880. 

"The  condition  of  this  obligation  is  such  that,  whereas,  the  above- 
named  J.  B.  Booker  &  Co.  has  been  duly  appointed  by  the  directors 
of  the  aforesaid  company  their  agents  for  the  "city  of  Jacksonville 
and  its  vicinity,  state  of  Illinois,  during  their  pleasure,  and  by  rea- 
son whereof,  and  as  such  agent,  he  will  receive  into  his  hands  and 
possession  divers  sums  of  money,  policies,  chattels  and  other  effects, 
the  property  of  said  company,  and  is  bound  to  keep  true  and  accu- 
rate accounts  of  said  property,  and  of  his  receipts  and  disburse- 
ments, and  to  account  for  and  pay  over  the  same  to  the  said  com- 
pany when  demanded,  and  comply  with  all  instructions  furnished 
him  from  the  office  of  said  company,  or  from  H.  M.  Magill,  gen- 
eral agent,  at  Cincinnati,  Ohio, 

"Now,  therefore,  if  the  said  J.  B.  Booker  &  Co.  shall  promptly 
pay  to  said  company  the  amounts  received  from  time  to  time,  and 
shall  well  and  truly  perform  all  and  singular  the  duties  aforesaid, 
.  for  and  during  the  time  he  officiates  as  said  agent,  and  shall  deliver 
all  the  property  which  he  may  receive  and  hold  as  such  agent,  to 
his  successor  in  office,  or  to  such  other  person  as  the  company  or 
its  authorized  officers  may  direct,  then  this  obligation  shall  be  null 
and  void,  otherwise  to  remain  in  full  force  and  virtue. 

"Joseph  B.  Booker,  (Seal.) 
"Albert  H.  Brace,  (Seal.) 
"M.  Rapp/'  (Seal.) 

The  remaining  facts  are  embodied  in  a  stipulation  between  the 
parties,  which  is  as  follows :  That  appellee  appointed  J.  B.  Booker 
&  Co.  its  agents,  and  by  the  contract  of  appointment  said  agents 
were  to  make  with  appellee  a  full  settlement  of  each  month's  busi- 
ness at  the  end  of  each  and  every  month  while  they  should  remain 
the  appellee's  agents ;  that  said  agents  were  not  appointed  for  any 
specified  time;  that  M.  Rapp  signed  the  bond  in  evidence;  that  M. 


REVOCATION    OF    GUARANTY  311 

Raj^cHejLaoQut  the  10th  of  March,  1882;  that  notice  of  the  death 
ofALRapp  was  published  in  the  newspapers  in  Jacksonville  in  the 
montfTof  Marchi_1882,  that  the  agents  of  appellee  had  actual  notice 
of  the  death  of  M.  Rapp  at  the  time  of  his  death;  that  said  agents 
faithfully  made  their  monthly  settlements  with  appellee  for  ten 
months  after  the  death  of  M.  Rapp,  and  paid  appellee  all  that  was 
due  it  up  to  January  1,  1883;  that  said  agents  failed  to  make  set- 
tlement with  appellee  for  the  month  of  January,  1883,  and  also 
failed  to  make  a  settlement  for  the  month  of  February,  1883  ;  that 
appellee  did  not  notify  the  executors  of  M.  Rapp  of  the  failure  of 
said  agents  to  make  the  January,  1883,  settlement,  until  after  the 
failure  to  make  the  February  settlement ;  that  the  claim  filed  shows 
correctly  the  sums  received  by  said  agents  in  the  months  of  January 
and  February,  1883,  which  they  failed  to  pay  over.  The  entire 
deficit  of  the  agents  was  $260.  The  court  charged  the  estate  of 
Rapp  with  the  default  for  January,  which,  as  already  appears, 
amounted  to  $188.90,  but  refused  to  allow  the  one  for  February, 
and  appellee  has  assigned  as  a  cross-error  the  ruling  of  the  court  in 
rejecting  the  latter  claim. 

Mr.  Justice  Mulkey  delivered  the  opinion  of  the  court. 

It  is  contended  by  appellant  that  the  bond  in  question  is,  in  legal 
effect,  the  same  as  a  guaranty  of  future  advances  to  the  extent  of 
$1,000;  that  it  did  not  become  binding  or  operative  upon  the  makers 
until  money  or  other  property  belonging  to  the  company  came  into 
the  hands  of  J.  B.  Booker  &  Co.  as  its  agents ;  that  money  or  prop- 
erty thus  coming  into  their  hands  is  to  be  regarded  in  the  nature  of 
future  advances,  and  to  be  governed  by  the  same  rules  of  law  that 
are  applicable  to  such  advances;  that  the  contract  being  indefinite  as 
to  its  duration,  either  party  had  the  right  to  terminate  it  on  notice  ; 
that  it  existed,  so  to  speak,  by  the  continued  desire  or  joint  will  of 
the  parties,  and  as  this,  in  the  nature  of  things,  could  not  extend  - 
beyond  their  joint  lives,  and  as  Rapp  could  not,  after  his  decease, 
terminate  the  contract  by  notice,  the  law  itself  terminated  it,  and 
hence  Rapp's  estate  is  not  bound  for  anything  that  occurred  after 
his  death.     Such  is  the  position  of  appellant,  as  we  understand  it. 

The  bond  in  question  is  something  more  than  an  [ordinary  con- 
tract  of  guaranty.  It  is  a  joint  and  several  contract  between  Joseph 
H.  Booker,  Albert  H.  Brace  and  M.  Rapp,  on  the  one  side,  and  ap- 
pellee on  the  other.  The  contract  discloses  upon  its  face  that 
Booker  and  Brace,  under  the  style  of  J.  B.  Booker  &  Co.,  had  been 
appointed  agents  of  appellee  in  conducting  the  insurance  business, 
and  that  by  virtue  of  their  appointment,  and  the  service  upon  which 
they  had  or  were  then  about  to  enter,  certain  moneys,  chattels  and 
effect  would  come  into  their  hands,  which  of  itself  disclosed  a  suffi- 
cient consideration  to  support  the  undertaking  of  the  obligors  so 
long  as  the  agency  continued.  The  contract  therefore  became  bind- 
ing immediately  upon  the  execution  of  the  instrument,  and  had  a 
default  on  the  part  of  the  agents  occurred  in  the  lifetime  of  Rapp, 


312  COMMERCIAL    GUARANTIES 

there  is  no  question  but  that  a  joint  action  might  have  been  main- 
tained on  the  bond  against  all  three  of  the  obligors.  The  instru- 
ment, then,  was  a  written  contract,  whereby  the  obligors,  jointly 
and  severally,  bound  themselves,  their  executors  and  administrators, 
to  the  extent  of  $1,000,  for  the  faithful  discharge  of  the  duties  of 
two  of  them  in  a  certain  specified  business  of  a  confidential  char- 
acter. Two  of  the  obligors  stipulate  for  their  own  honesty  and 
business  fidelity;  the  other  joins  in  the  stipulation,  and  also  indi- 
vidually guarantees  the  same  thing.  It  is  to  be  observed,  that,  un- 
like an  ordinary  continuing  guaranty,  as  it  is  claimed  this  is,  nothing 
is  to  be  done  by  any  of  the  parties  to  the  instrument  to  give  it  ef- 
fect or  make  it  binding  upon  them,  as  is  always  the  case  where  the 
payment  of  future  advances,  merely,  is  guaranteed.  The  difference 
between  the  two  cases  is  well  illustrated  by  the  language  of  the 
court  in  Jordan  et  al.  v.  Dobbins,  122  Mass.  168,  cited  and  relied 
on  in  appellant's  brief.  In  that  case  the  goods  sued  for  were  sold 
after  the  guarantor's  death,  and  the  court,  in  holding  there  could 
be  no  recovery,  among  other  things  said :  "An  agreement  to  guar- 
antee the  payment  by  another  of  goods  to  be  sold  in  the  future,  not 
founded  upon  any  present  consideration  passing  to  the  guarantor, 
is  a  contract  of  a  peculiar  character.  Until  acted  upon  it  imposes 
no  obligation,  and  creates  no  liability  of  the  guarantor.  After  it  is 
acted  upon,  the  sale  of  the  goods  upon  the  credit  of  the  guaranty 
is  the  only  consideration  for  the  conditional  promise  of  the  guar- 
antor to  pay  for  them.  It  is  in  the  nature  of  an  authority  to  sell 
goods  upon  the  credit  of  the  guarantor,  rather  than  a  contract  which 
can  not  be  rescinded  except  by  mutual  consent.  Thus,  such  a  guar- 
anty is  revocable  by  the  guarantor  at  any  time  before  it  is  acted 
upon.  Such  being  the  nature  of  the  guaranty,  we  are  of  opinion 
that  the  death  of  the  guarantor  operates  as  a  revocation  of  it,  and 
that  the  person  holding  it  can  not  recover  against  his  executor  for; 
goods  sold  after  the  death." 

Without  expressing  any  opinion  for  the  present  in  respect  to 
the  conclusion  reached  in  that  case,  we  fully  concur  in  the  general 
expressions  of  the  court  with  regard  to  the  peculiar  character  of  a 
continuing  guaranty  where  it  is  supported  by  no  consideration  other 
than  advances  to  be  made  at  a  future  day,  and  where  the  party  to 
whom  the  guaranty  is  given  assumes  no  obligation  to  make  such 
advances,  as  is  generally  the  case  with  such  guarantees.  But  the 
transaction  now  under  consideration  can  hardly  be  said  to  be  a 
guaranty  of  this  character.  Taking  a  common-sense  business  view 
of  the  matter,  the  giving  of  the  bond,  and  its  acceptance  by  the 
company,  were  the  final  acts  by  which  Booker  and  Brace  were 
clothed  with  authority  to  open  an  insurance  office  at  Jacksonville 
in  the  name  and  on  behalf  of  the  company.  And  there  can  be'  no 
doubt  but  that  the  intrusting  them  with  its  business,  and  permit- 
ting them  to  conduct  it  with  the  public  in  the  company's  name,  was 


REVOCATION    OP    GUARANTY  313 

a  sufficient  consideration,  independent  of  the  fact  the  instrument 
was  under  seal,  to  support  the  agreement  in  question.  In  these  re- 
spects the  Dobbins  case  is  wholly  unlike  the  one  in  hand.  In  this 
case  no  additional  act  was  to  be  done  by  appellee,  or  any  one  else, 
to  give  the  bond  effect.  Business  was  commenced,  and  continued 
under  it  for  a  long  time,  satisfactorily  to  all  parties.  Even  accord- 
ing to  the  rule  applicable  to  continuing  guarantees,  strictly  so- 
called,  the  bond  under  consideration  was  in  full  force  and  effect 
long  before  Rapp's  death.  We  have  looked  with  considerable  care 
to  see  if  the  general  principles  applicable  to  a  continuing  guaranty 
of  the  kind  mentioned  have  ever  been  extended  to  an  ordinary 
agent's  bond,  as  is  sought  to  be  done  here,  and  we  have  wholly 
failed  to  find  any  authority  for  it,  and  certainly  none  has  been 
cited. 

Considerable  space  in  appellant's  brief  is  occupied  in  an  effort  to 
show  that  Rapp's  liability  upon  the  bond  could  have  been  ter- 
minated at  any  time  before  his  death  by  his  giving  the  company 
notice  to  that  effect.  Whether  his  liability  could  have  been  thus 
terminated  in  his  lifetime,  or  whether  his  executors  might  in  this 
manner  have  terminated  it  after  his  decease,  are  questions  which 
do  not  directly  arise  on  this  record,  as  it  is  not  pretended  any  such 
notice  was  given,  either  before  or  after  his  death.  But  as  these 
questions  probably  have  more  or  less  bearing  upon  the  main  ques- 
tion in  the  case,  presently  to  be  stated,  they  may  be  incidentally 
noticed  further  on. 

The  controlling  question  in  the  case  is,  whether  upon  Rapp's 
death  the  bond  in  question,  by  mere  operation  of  law,  ceased  to 
have  any  legal  effect  as  to  subsequent  transactions  between  the  com- 
pany and  its  agents,  J.  B.  Booker  &  Co.  It  is  a  familiar  rule  of  law 
that  requires  no  citation  of  authority  for  its  support,  that  the  death 
of  the  principal  is  per  se  a  revocation  of  the  agent's  authority,  and  i 
hence  all  contracts  or  other  engagements  subsequently  entered  into 
by  the  latter,  on  behalf  of  the  principal,  are  absolutely  void  as  to  ' 
his  legal  representatives,  and  this  notwithstanding  the  death  of  the 
principal  was  unknown  at  the  time  such  contracts  or  other  engage-* 
ments  were  entered  into.  Onthe  other  hand,  the  general  rule  un^y 
questionably  is,  that  all  contracts  entered  into  by  one,  not  of  a  per-  , 
sonal  character,  are  equally  binding  upon  himself,  and  his  legal  rep- 
resentatives after  his  decease.  This  general  rule  is  well  stated  in 
Chitty  on  Contracts  (10th  Am.  ed.),  p.  101.  The  author  says: 
"It  is  a  presumption  that  the  parties  to  a  contract  bind  not  only 
themselves,  but  their  personal  representatives.  Executors,  there- 
fore, are  held  to  be  liable  on  all  contracts  of  the  testator  which  are 
broken  in  his  lifetime,  and,  with  the  exception  of  contracts  in  which 
personal  skill  or  taste  is  required,  on  all  such  contracts  broken  after 
his  death ;  and  such  parties  may  likewise  sue  on  a  contract,  although 
they  be  not  named  therein."     In  the  present  case,  however,  Rapp, 


314 


COMMERCIAL    GUARANTIES 


as  we  have  already  seen,  expressly  binds  his  executors  and  admin- 
istrators, and  hence  no  question  of  presumption  of  liability  can 
arise,  so  far  as  Rapp's  legal  representatives  are  concerned,  for  if 
it  be  possible  to  bind  them  by  any  terms,  they  are  certainly  bound. 

Appellant  contends,  however,  as  the  bond  is  nothing  more  than 
an  ordinary  continuing  guaranty,  without  limitation  as  to  time,  and 
could  not  for  that  reason  have  extended,  in  any  event,  beyond  the 
guarantor's  life,  the  provision  expressly  binding  his  personal  rep- 
resentatives must  have  been  intended  to  apply  only  to  such  defaults 
as  might  occur  during  his  lifetime.  For  reasons  already  appearing 
and  others  hereafter  to  be  stated,  we  do  not  think  this  view  is 
sound.  In  support  of  the  proposition  that  the  bond  in  question 
ceased  to  have  any  legal  effect  or  binding  force  upon  the  death  of 
Rapp,  as  to  all  subsequent  transactions,  four  cases  are  cited  and 
relied  on,  namely,  Pratt  v.  Trustees,  etc.,  93  111.  475  ;  Jendevine  et 
al.  v.  Rose  et  al,  36  Mich.  54;  Harris  v.  Fawcett,  15  Law  Rep.  Eq. 
C.  311,  and  Jordan  et  al.  v.  Dobbins,  already  referred  to. 

The  principle  applied  to  the  Pratt  case,  and  upon  which  it  was 
decided,  is  the  well-recognized  doctrine  that  a  mere  voluntary  prop- 
osition may  be  withdrawn  at  any  time  before  such  action,  is  taken 
under  it  as  will,  in  law,  show  not  only  its  acceptance,  but  also  a 
sufficient  consideration  to  sustain  it  as  a  contract.  In  every  case 
of  a  mere  voluntary  proposition,  if  the  party  making  it  die  before 
any  action  has  been  taken  under  it,  his  death  will,  in  law,  operate 
as  a  withdrawal  of  the  proposition — consequently  it  can  not  be  ac- 
cepted or  acted  upon  afterward  so  as  to  bind  his  estate.  The  prin- 
ciple here  stated,  and  which  was  applied  to  the  Pratt  case,  we  do 
not  think  has  any  application  to  this  one. 

Jendevine  et  al.  v.  Rose  et  al.,  supra,  in  some  of  its  features  is 
much  like  the  case  before  us.  In  that,  as  in  this,  the  action  was 
upon  a  bond  which,  like  the  present  case,  was  founded  upon  a  suffi- 
cient present  consideration,  and  related  to  a  contemporaneous  con- 
tract of  indefinite  duration,  which  was  subject  to  be  abrogated  by 
either  of  the  parties  to  it,  and,  of  course,  upon  such  abrogation 
the  bond  itself  would  have  become  functus  officio.  Here  the  resem- 
blance between  the  two  cases  ceases.  The  bond  in  that  case  was  a 
guaranty  of  future  sales ;  in  this  it  is|a_guarantv  of  the.hnnp.stv  and 
fidelity  of  particular  persons  in  a  specified  business.  In  that  the 
money  sought  to  be  recovered  was  the  price  of  goods  sold  after  the 
obligee  in  the  bond  had  been  expressly  notified  not  to  make  any  fur- 
ther sales  on  the  faith  of  the  defendant's  guaranty.  In  this  case, 
neither  Rapp,  in  his  lifetime,  nor  his  executors,  after  his  decease, 
gave  any  such  notice.  It  will  be  thus  seen  the  two  cases  differ 
materially  in  a  number  of  important  particulars,  so  that  there  is  no 
ground  for  the  claim  that  that  case  controls  this.  The  actual  point 
decided  in  the  Michigan  case  is,  that  the  surety  (the  obligor  in  the 
bond)  had  the  right  to  terminate  his  liability  upon  it  by  giving  no- 


s  +   s 


REVOCATION    OF   GUARANTY  315 

tice,  as  he  did.  This  certainly  falls  far  short  of  sustaining  the  po- 
sition that  a  liability  of  that  character  is  determined  by  death, 
without  such  notice. 

Harris  v.  Fawcett,  supra,  was  a  chancery  proceeding-.  The  guar- 
anty in  that  case  was  one  of  future  advances,  wherein  it  was  ex- 
pressly provided  the  guaranty  should  continue  for  six  months,  no- 
tice in  writing,  under  the  hand  of  the  guarantor,  "to  discontinue  the 
same."  The  guarantor  died,  leaving  as  his  executor  on  whose  ac- 
count the  guaranty  had  been  given.  It  was  known  to  the  creditors 
having  the  guaranty,  there  was  no  personal  estate  to  discharge  the 
liability  of  the  deceased  upon  the  guaranty,  nevertheless  they  con- 
tinued to  make  advances  to  the  executor,  on  the  faith  of  it,  after 
the  guarantor's  death.  This  was  such  a  transaction  between  the 
creditors  and  the  executor,  who  was  acting  in  manifest  disregard 
of  his  duty  to  the  estate,  with  their  knowledge,  that  no  court  of 
equity  ought  to  have  sustained  it,  and  so  it  was  held.  In  that  case, 
as  we  have  just  seen,  the  right  to  terminate  the  contract  by  six 
months'  notice  was  expressly  reserved  in  the  contract  itself.  But 
as  the  death  of  the  guarantor  rendered  it  impossible  to  give  the 
kind  of  a  notice  provided  for,  namely,  a  notice  under  the  guaran- 
tor's own  hand — a  fact  to  which  the  court  seems  to  have  attached 
considerable  importance — it  was  held,  as  the  contract  was  clearly 
not  intended  to  continue,  forever,  the  estate  of  the  guarantor,  under 
the  circumstances,  was  not  bound  for  advances  made  after  his 
death.  The  case,  however,  is  not  an  authority  for  the  proposition 
that  the  death  of  a  guarantor  in  a  case  like  the  present  is  per  se  an 
abrogation  of  the  contract.  On  the  contrary,  the  logic  of  the  entire 
reasoning  of  the  court  leads  irresistibly  to  the  opposite  result.  In 
the  present  case  there  is  no  provision  in  the  contract  of  the  obligors 
by  which  they  are  authorized  to  terminate  their  liability  on  the  bond, 
and  the  duration  of  their  liability  is  therein  expressly  declared  to 
be  during  the  time  J.  B.  Booker  &  Co.  officiate  as  agents  of  the  in- 
surance company — so  it  is  clear  the  contract  in  this  case  is  essen- 
tially different  from  the  one  in  that,  but  the  reasoning  in  that  case 
as  just  observed,  is  clearly  against  the  appellant  in  this. 

In  the  case  of  Jordan  et  al.  v.  Dobbins,  supra,  the  action  was 
brought  on  a  continuing  guaranty  to  recover  the  price  of  goods  sold 
after  the  guarantor's  death,  and  it  was  held  there  could  be  no  re- 
covery, on  the  ground  the  guarantor's  death  terminated  the  guar- 
anty, notwithstanding  it  was  unknown  at  the  time  the  goods  were 
sold.  In  thus  holding,  the  case  is  clearly  unsupported  by  the  de- 
cided weight  of  authority.  Chitty  on  Contracts,  supra ;  Brandt  on 
Suretyship,  §  113;  Green  v.  Young,  8  Greenlf,  14;  Moore  v.  Wallis 
et  al.,  18  Ala.  458;  Royal  Ins.  Co.  v.  Davies,  40  Iowa  469;  Menard 
v.  Scudder,  7  La.  Ann.  385.  If,  as  contended  by  appellant,  there 
is  no  difference  in  principle  between  that  and  the  present  case,  it 
must  be  admitted  the  former  is  an  authority  directly  in  point  sus- 


316  COMMERCIAL    GUARANTIES 

taining  his  position ;  but,  as  already  indicated,  we  think  there  is  an 
essential  difference  between  a  guaranty  of  future  advances,  whether 
in  the  form  of  a  bond,  or,  as  is  usually  the  case,  of  a  mere  stipula- 
tion, and  a  bond  executed  by  an  agent  and  his  sureties  for  the  faith- 
ful discharge  of  the  former's  duties  in  some  business  or  employ- 
ment, as  was  the  case  here.  Such  a  bond  is,  in  all  its  essential 
features,  like  the  bond  of  an  executor,  guardian,  trustee,  and  the 
like.  The  only  difference  between  the  two  cases  is,  that  most  of 
these  bonds  are  required  to  be  taken  by  express  statutory  provision. 
But  this  only  relates  to  the  duty  of  giving  such  a  bond.  It  does  not 
change  its  scope,  character  or  legal  effect  when  given.  All  volun- 
tary bonds  executed  for  a  lawful  purpose,  like  statutory  bonds,  de- 
rive whatever  efficacy  or  binding  force  they  have,  from  the  positive 
law  of  the  state,  and  in  this  respect  there  is  no  difference  in  the  two 
classes  of  bonds.  To  hold  that  the  estate  of  a  surety  on  an  ordinary 
trustee's  bond  is  absolutely  discharged  from  all  future  liability  upon 
the  death  of  the  surety,  on  the  ground  that  his  death  is  per  se  an 
extinguishment  of  the  bond,  would  certainly  be  a  startling  proposi- 
tion to  come  from  this  or  any  other  court  of  final  resort;  and  yet  to 
decide  this  case  in  conformity  with  appellant's  theory  would  be,  in 
legal  effect,  to  assert,  as  we  understand  it,  that  very  proposition. 
We  unhesitatingly  decline,  both  upon  reason  and  authority,  to  give 
our  adhesion  to  any  such  a  doctrine.  We  have  no  doubt  of  the  cor- 
rectness of  the  ruling  of  the  trial  court  in  allowing  appellee's  claim 
to  the  extent  it  did.     *     *     * 

Holding,  as  we  do,  the  ruling  of  the  trial  court  was  correct  in  al- 
lowing the  claim  for  the  amount  it  did,  it  follows  the  appellate 
court  properly  affirmed  the  order. 

Judgment  affirmed. 

Dickey  and  Craig,  JJ. :  We  can  not  concur  in  this  decision. 
We  think  this  bond,  on  the  part  of  the  surety,  is  simply  a  contin- 
uing guaranty  by  him  of  the  good  conduct  of  the  agents  of  the 
insurance  company — that  the  relations  of  the  parties  were  in  their 
nature  capable  of  determination  at  the  will  of  either  the  insurance 
company  or  of  the  agents  in  question,  or  at  the  will  of  the  surety. 
.This  surety  certainly  could  not  be  held  indefinitely,  but  by  notice 
of  his  unwillingness  to  be  bound  further,  could  relieve  himself  from 
liability  accruing  thereafter.  In  this  his  case  differs  from  that  of 
surety  for  an  officer,  executor  or  guardian.  We  think  the  death 
of  the  surety  operated  to  terminate  his  obligation  as  to  moneys 
coming  to  the  hands  of  the  agents  thereafter.  On  this  latter  ques- 
tion the  authorities  are  not  in  harmony.  We,  however,  think  the 
reason  of  the  matter  is  decidedly  in  favor  of  the  proposition  that 
in  this  regard  death  was  equivalent  to  notice.  See  Jendevine  v. 
Rose,  36  Mich.  54;  Jordan  v.  Dobbins,  122  Mass.  168;  Harris  v. 
Fawcett,  15  Law  Rep.  Eq.  C.  311. 
*Part  of  opinion  omitted. 


REVOCATION    07    GUARANTY  317 

BALFOUR  v.  CRACE 
L.  R.  1  Ch.  Div.  773  (1902). 

In  1882  the  plaintiff,  Blayney  Reynell  Balfour,  who  was  the  owner 
of  certain  estates  in  Ireland,  appointed  one  Dolling  to  act  as  agent 
of  his  estates  and  receive  the  rents  thereof,  and,  in  consideration  of 
this  appointment,  Dolling  and  his  father-in-law  John  Gregory  Crace 
as  his  surety,  executed  a  joint  and  several  bond  dated  June  25,  1883, 
forihe-sumjDl £3,000  in  favor  of  the  plaintiff.  This  bond  was  given 
at  the  plaintiff's  request  by  way  of  security  for  the  due  performance 
by  Dolling  of  his  duties  and  obligations  as  the  plaintiff's  agent  and 
receiver. 

The  bond  was  in  the  following  form : 

"Know  all  men  by  these  presents  that  we,  Caledon  Josias  Radcliffe 
Dolling,  of  34  Mountjoy  Square,  in  the  city  of  Dublin,  Esquire,  and 
John  Gregory  Crace,  of  No.  38  Wigmore  Street,  London,  in  the 
county  of  Middlesex,  and  of  Springfield,  Dulwich,  Esquire,  are 
jointly  and  severally  held  and  firmly  bound  to  Blayney  Reynell  BaP 
fotuv  of  Townley  Hall,  Drogheda,  in  the  city  of  Louth,  Esquire,  in 
the  sum  of  £3,000,  to  be  paid  to  the  said  Blayney  Reynell  Balfour, 
or  his  attorney,  his  executors,  administrators  or  assigns,  for  which 
payment  to  be  well  and  truly  made  we  bind  ourselves  and  each  of 
us,  one  and  each  and  every  of  our  heirs,  executors,  and  adminis- 
trators, jointly  and  severally,  firmly  by  these  presents." 

The  bond  then  recited  that  Dolling  had  previously  been  employed 
by  the  plaintiff's  predecessor  in  title,  B.  R.  Balfour,  as  agent  of  the 
estates,  and  proceeded  as  follows : 

"And  whereas  the  said  Blayney  Reynell  Balfour  has  appointed  the 
said  C.  J.  R.  Dolling  his  agent  or  receiver  of  the  rent,  issues,  and 
profits  of  all  his  estates  in  Ireland.  And  whereas  upon  such  ap- 
pointment of  the  said  C.  J.  R.  Dolling  as  aforesaid  the  said  B.  R. 
Balfour  required  the  said  C.  J.  R.  Dolling  to  enter  into  security  for 
the  sum  of  £3,000.  And  whereas  the  said  J.  G.  Crace  has  consented 
to  become  surety  for  the  said  C.  J.  R.  Dolling.  Now  the  condition 
of  the  above  obligation  is  such  that  if  the  above  bounden  C.  J.  R. 
Dolling  shall  pay  or  cause  to  be  paid  to  the  said  B.  R.  Balfour  all 
sums  of  money  which  shall  represent  the  rents,  issues,  and  profits, 
of  said  estates  payable  to  the  said  B.  R.  Balfour  as  executor  of  the 
said  B.  R.  Balfour,  and  shall  and  will  from  time  to  time  and  at  all 
times  hereafter  as  often  as  requested  by  the  said  B.  R.  Balfour,  his 
executors,  administrators,  or  assigns,  well  and  truly  pay  or  cause  to 
be  paid  unto  the  said  B.  R.  Balfour,  his  executors,  administrators, 
or  assigns,  all  such  sum  or  sums  of  money  as  he  the  said  C.  J.  R. 
Dolling  shall  have  had  or  received  of  the  said  rents  and  profits  of 
the  said  estates,  and  shall  and  will  render  to  the  said  B.  R.  Balfour 


318  COMMERCIAL    GUARANTIES 

and  his  heirs,  executors,  administrators,  and  assigns  true,  just,  full, 
and  perfect  accounts  of  all  and  every  such  sum  and  sums  of  money 
as  shall  be  by  him  had  or  collected  from  the  tenants  and  occupiers 
of  said  estates,  or  from  or  on  account  of  the  rents  and  profits  of  the 
said  estates  or  any  part  thereof,  or  for  or  on  account  of  the  said 
B.  R.  Balfour,  his  heirs,  executors,  administrators,  or  assigns,  and 
shall  and  will  while  he  shall  continue  to  act  as  such  agent  or  re- 
ceiver, well,  justly,  truly,  and  honestly  in  every  respect  conduct  him- 
self in  the  said  office  of  agent  or  receiver  of  the  said  rents,  then  this 
obligation  and  every  matter  and  thing  therein  contained  shall  be 
void  and  of  no  effect;  otherwise  the  same  shall  remain  in  full  force 
and  virtue  in  law."  A 

Dolling  continued  to  act  as  the  plaintiff's  agent  and  receiver  until  \ 
about  February,  1900 ;  but  in  April,  1900,  he  executed  an  assignment 
to  a  trustee  for  the  benefit  of  his  creditors,  and  left  the  country, 
having  failed  to  account  to  the  plaintiff  for  large  sums  received  on  / 
his  behalf. 

J.  G.  Crace  died  on  August  13,  1889^Jiaving  by  his  will  appointed/ » 
the  defendants  to  be  his  executor.   This  was  an  action_by_  the  plain- 
tiff  seeking  to  make  the  defendants  liable  upon  the  bond. 

The  defendants  pleaded  that  the  liability  of  their  testator  under/ 
the  bond  ceased  upon  his  death.  / 

By  an  order  dated  October  28,  1901,  upon  the  application  of  the 
plaintiff,  and  upon  an  admission  by  him  that  the  said  J.  G.  Crace 
died  on  August  13,  1889,  and  that  he,  the  plaintiff,  had  notice  of  the 
death  shortly  after  that  date,  the  following  point  of  law  was  directed 
to  be  tried  before  any  evidence  was  given  or  issue  of  fact  tried, 
namely:  "Whether  the  liability  (if  any)  of  the  said  J.  G.  Crace 
under  the  bond  dated  the  25th  June,  1883,  was  determined  on  the 
death  of  the  said  J.  G.  Crace,  or  when  such  death  first  became 
known  to  the  plaintiff."  During  the  course  of  the  argument  the 
form  of  the  question  was  slightly  amended,  and  as  amended  read  as 
follows:  "Whether  the  liability  (if  any)  of  the  said  J.  G.  Crace 
under  the  bond  was  determined  immediately  or  otherwise  by  the 
mere  fact  of  his  death  coming  to  the  knowledge  of  the  plain- 
tiff."    *     *     *  , 

Joyce.  J. :  I  think  it  is  undoubtedly  law  that  a  continuing  guar- 
antee not  under  seal  for  future  advances,  if  not  so  framed  as  to  be- 
come operative  before  it  is  acted  on,  may  be  revoked  or  withdrawn 
altogether  before  being  acted  on,  and  as  to  further  or  future  trans- 
actions may  be  terminated  at  any  time  unless  the  contrary  be  ex- 
pressly stipulated.  Now,  the  reasons  for  this  in  the  case  of  such  a 
guarantee  are,  I  think,  pretty  obvious  on  a  moment's  consideration, 
and  they  are  put  very  lucidly  in  the  judgment  of  Erie,  C.  J.,  in  Of- 
ford  v.  Davies,  12  C.  B.  (N.  S.)  748. 

When  such  a  guarantee  is  under  seal,  I  think  it  has  been  held  at 
law  that  the  guarantor  is  not  entitled  by  notice  to  determine  its  op- 


REVOCATION    OF    GUARANTY  319 

eraiioiL-  But  in  equity,  I  think,  even  in  the  case  of  a  continuing 
guarantee  under  seal,  such  a  guarantee  as  that  I  have  mentioned, 
where,  as  Lush,  L.  J.,  puts  it  in  the  case  of  Lloyd's  v.  Harper,  16 
Ch.  D.  319,  "the  consideration  is  fragmentary,  supplied  from  time 
to  time,  and  therefore  divisible,"  the  operation  of  the  guarantee  as; 
to  future  transactions  may  be  determined  by  notice.  Now,  the  right ' 
to  determine  or  withdraw  a  guarantee  by  notice  forthwith  can  not 
possibly  exist,  in  my  opinion,  when  the  consideration  for  it  is  indi- 
visible, so  to  speak,  and  moves  from  the  person  to  whom  the  guar- 
antee is  given  or  conferring  an  office  or  employment  upon  any  per- 
son whose  integrity  is  guaranteed.  It  is  impossible  that  the  guar- 
antor should  be  entitled  by  notice,  unless  he  has  expressly  so  stipu- 
lated, to  determine  that  guarantee  instanter.  Time  must  be  allowed 
— at  all  events,  it  is  admitted  that  some  time  must  be  allowed — for 
a  lawful  determination  of  the  employment  by  the  person  to  whom 
the  guarantee  is  given,  and  I  think,  with  reference  to  a  guarantee 
of  the  nature  which  we  have  to  consider  in  the  present  case,  many 
other  considerations  are  applicable  besides  merely  a  lawful  deter- 
mination of  the  employment  by  giving  six  months'  notice,  or  some- 
thing of  that  kind.  As  I  said  in  the  course  of  the  argument,  six 
months'  notice  might  determine  the  employment  just  in  the  midst  of 
the  audit  or  receipt  of  the  rents ;  or  the  employer  might  be  placed  in 
such  a  position  with  reference  to  the  person  employed  that  it  might 
be  most  inadvisable  and  injurious  to  put  an  immediate  end  to  the 
employment. 

If,  however,  such  a  guarantee  can  be  determined  by  notice  at  all, 
the  question  what  length  of  notice  the  employer  must  necessarily  be 
entitled  to,  I  think,  has  not  been  determined,  and  must  depend  upon 
the  circumstances  of  the  particular  case.  Now,  that  being  so,  there 
is  no  difficulty  whatever  to  my  mind  in  answering  the  question  which 
was  argued  before  me  as  it  originally  stood.  It  would  have  been 
impossible  to  hold  that  with  respect  to  this  guarantee,  where  there 
is  no  stipulation  to  the  contrary,  the  liability  of  the  guarantor  under 
the  bond  was  determined  immediately,  either  on  the  death  of  the 
guarantor  or  on  the  fact  of  his  death  coming  to  the  knowledge  of 
the  person  to  whom  the  guarantee  was  given.  But  I  am  told  that 
that  is  not  the  real  question,  and  it  was  proposed  to  alter  the  ques- 
tion in  a  form  which  was  party  suggested  by  myself,  and  the  ques- 
tion I  have  to  decide  is  whether  the  liability,  if  any,  of  Mr.  Crace 
under  the  bond  was  determined,  immediately  or  otherwise,  by  the 
mere  fact  of  his  death  coming  to  the  knowledge  of  the  plaintiff. 
Now,  whatever  the  true  answer  to  that  question  may  be,  and  whether 
such  a  guarantee  as  this  can  be  determined  by  notice  or  not,  I  cer- 
tainly agree  with  what  Romer,  J.,  says  in  In  re  Silvester  (1895),  1 
Ch.  573,  577,  where  he  observed  on  Lord  Bowen's  decision  in  Coult- 
hart  v.  Clementson,  5  O.  B.  D.  42 :  "I  desire  to  add  that  I  do  not 
assent  to  the  general  proposition  that  where  a  person  who  is  himself 


'320  COMMERCIAL    GUARANTIES 

entitled  to  the  benefits  of  a  contract  of  guaranty  has  notice  of  the 
death  of  the  guarantor  and  that  he  left  a  will,  he  is,  without  more, 
affected  with  notice  of  the  contents  of  the  will,  or  is  bound  to  as- 
sume that  prima  facie  it  would  be  a  breach  of  trust  on  the  part  of  the 
executor  not  to  give  notice  to  determine  that  liability."  I  desire  to 
express  my  entire  agreement  with  that,  whatever  the  proper  answer 
be  to  the  question  whether  such  guarantee  as  that  which  we  have 
to  consider  in  this  case  can  be  determined  by  notice  or  not.  Really 
what  we  have  to  decide  is  this— whether,  when  the  guarantee  is_of_ 
this  kind,  given  as  part  of  the  consideration  for  the  appointment  to 
an  office  or  employment  of  a  person  by  another  to  whom  the  guar- 
antee is  given,  the  law  requires  the  guarantor,  in  case  he  desires  the 
guarantee  to  be  determinable  by  notice  or  by  his  death,  to  have  it 
expressly  so  stipulated,  or  does  the  law  require  the  person  to  whom 
the  guarantee  is  given  to  have  it  expressly  so  stipulated  if  the  guar- 
antee is  not  to  be  determined  by  notice  or  by  death  of  the  guaran- 
tor? Well,  after  listening  to  the  argument  and  giving  some  consid- 
eration to  the  case,  I  have  come  to  the  conclusion  that  upon  the  whole 
'where  an  office  or  employment  is  conferred  in  consideration  of  such  a 
guarantee  as  that  in  this  case,  it  is  safer  to  hold  that  the  guarantor 
must  expressly  so  stipulate  or  provide  if  he  desires  the  guarantee  to 
be  determinable  by  notice,  or  to  be  determined  by  his  own  death. 
And  in  coming  to  that  conclusion  I  rely  on  Gordon  v.  Calvert,  2  Sim. 
253 ;  4  Russ.  581  ;  29  R.  R.  94,  and  also  upon  what  I  understand  to 
be  the  reasoning  of  the  Lords  Justices  in  Lloyd's  v.  Harper,  16  Ch. 
D.  290,  although  I  have  not  forgotten  that  there  was  a  special  fact 
in  that  case,  namely,  that  the  person  whose  integrity  was  there 
guaranteed  was  in  what  was  analogous  to  employment  which  could 
not  be  determined  by  Lloyd's. 

Therefore  I  can  answer  this  question,  as  altered,  by  saying  that  the 
liability,  if  any,  of_the  said  John  Gregory  Crace  under  the  bond 
datea"  June  25,  1883",  was  not  determined,  immediately  or  otherwise, 
by  the  mere  fact  of  his  death  coming  to  the  knowledge  of  the  plain- 
tiff. 


CHAPTER  4 


SURETYSHIP    DEFENSES 


SECTION  1.    MATERIAL  ALTERATION  OF  THE 
CONTRACT 

(a)    Simple  Contracts 

WHITCHER  v.  JAMES  HALL^ 

5  Bam.  &  Cress.  269  (1826). 

Bayley,  J. :  I  think  that  the  rule  for  entering  a  nonsuit  ought  to 
he  made  absolute.  By  the  agreement  which  is  set  out  in  the  declara- 
tion, the  plaintiff  agreed  to  let,  and  Joseph  Hall  agreed  to  take,  the 
milking  of  thirty  cows  (not  more  nor  less)  for  the  sum  of  £7  10s. 
per  cow  per  annum,  to  commence  on  the  14th  of  February,  1824, 
and  on  the  conditions  therein  mentioned.  The  agreement  was,  that 
Joseph  Hall  was  to  have  the  milking  of  thirty  cows,  and  the  benefit 
was  to  inure  to  Joseph,  not  to  James,  but  the  latter  stipulated  that 
he  would  pay  the  whole  rent.  One  question  is,  whether  that  is  an 
entire  contract  as  to  the  number  of  cows.  If  it  be,  Joseph  was  en- 
titled to  have  the  milking  of  thirty  cows  during  the  continuance  of 
the  term.'  If  it  was  not  an  entire  contract,  but  a  contract  to  pay  for 
so  many  cows  as  the  plaintiff  should  supply,  and  the  plaintiff  sup- 
plied twenty-nine  or  any  other  number,  he  would  be  entitled  to  pay- 
ment for  so  many.  I  am  of  opinion  that  this  was  an  entire  contract 
for  the  purchase  of  thirty  cows;  and  if  at  commencement  of  the 
term  the  plaintiff  could  not  insist  that  this  was  a  divisible  contract, 
it  must  follow  that  it  continued  an  entire  contract  during  the  term. 
I  do  not  enter  into  the  question  whether  there  was  a  performance  of 
the  contract  at  the  commencement  of  the  term.  It  is  sufficient  to  say 
.that_there  was  a  new  agreement,  without  the  knowledge  of  James  ; 
IthatTjosephT was  to  have  the  milking  of  twenty-eight  cows  during 
one  part  of  the  year,  and  thirty-two  during  the  other  part.  That,  as 
it  seems  to  me,  was  not  a  continuance  of  the  original  bargain,  which 
was  for  the  milking  of  thirty  cows,  but  a_new  agreement.  The  new 
agreement  was  binding  only  on  those  persons  who  were  parties  to 
it.  If  it  had  been  intended  to  bind  James  by  it,  he  should  have  been 
consulted;  he  had  a  right  to  insist  upon  a  literal  performance  of 

21— De  Witt. 

321 


322 


SURETYSHIP    DEFENSES 


the  original  bargain.  If  a  new  bargain  was  made,  he  had  a  right  to 
exercise  his  judgment  whether  he  would  become  a  party  to  it. ,  There 
may,  perhaps,  be  very  little  difference  between  the  two  contracts,  but 
the  question  does  not  turn  on  the  amount  of  the  difference ;  but  the 
,     question  is,  whether  the  contract  performed  by  the  plaintiff  is  the 

.*  original  contract  to  which  the  defendant  was  a  party.  If  it  is,  then 
James  is  bound  by  it ;  otherwise  he  is  not.  There  is  no  hardship 
upon  the  plaintiff,  for  he  knew  that  James  stipulated  to  pay  the  rent 
upon  his,  the  plaintiff's  fulfilling  the  terms  of  the  original  bargain, 
and  that  he,  James,  was  not  bound  to  consent  to  the  substitution  of 
a  new  contract.  In  Heard  v.  Wadham,  1  East  619,  and  Campbell  vr 
French,  2  H.  Black.  163;  6  T.  R.  200,  it  was  held  that  the  per- 
formance of  a  contract,  substantially  the  same  as  that  originally 
made,  did  not  give  a  right  of  action  against  a  surety  who  had  not 
consented  to  the  alteration.  /Here  the  plaintiff  attempts  to  maintains 

j  his  action  by  proving  the  performance  not  of  the  contract  declared 

J  on,  but  of  a  subsequent  agreement.  But  he  has  averred,  and  was 
liound  to  prove  performance  of  the  original  agreement.    That  he 

y  has  not  proved  5  and,  upon  that  ground,  I  am  of  opinion  that  he 
was  not  entitled  to  recover,  and  that  the  rule  for  entering  a  nonsuit 
ought  to  be  made  absolute.* 


rr 


HOLME  v.  BRUNSKILL. 
L.  R.  3  Q.  B.  Div.  495  (1877). 


Cotton,  L.  J.:*  This  is  an  appeal  of  the  plaintiff  against  a  judg- 
ment of  Denman,  J.,  in  favor  of  the  defendant,  Robert  Brunskill. 
The  action  was  on  a  bond  for  £1,111,  dated  the  18th  of  March,  1873, 
executed  by  George  Brunskill,  Robert  Brunskill,  and  others  in  favor 
of  the  plaintiff.  The  plaintiff  was  at  the  date  of  the  bond,  and  still 
is,  the  owner  of  a  farm  called  Riggindale,  and  before  the  execution 
of  the  bond  he  had  agreed  with  George  Brunskill  to  let  to  him  as 
yearly  tenant  Riggindale  Farm,  including  certain  hill  pasture  held 
therewith,  and  also  a  flock  of  700  sheep ;  and  the  bond,  in  which 
Robert  Brunskill  joined  as  surety  for  George  Brunskill,  was  given 
to  the  plaintiff  to  secure  the  delivery  to  him  at  the  end  of  the  ten- 
ancy of  the  flock  of  sheep  in  good  order  and  condition.  The  mate- 
rial part  of  the  condition  of  the  bond  is  as  follows :  "If  the  above 
bounden  G.  Brunskill  should,  at  the  determination  of  the  tenancy, 
deliver  up  to  H.  P.  Holme,  along  with  the  said  farm  and  premises, 
the  like  number,  species,  and  quality  of  good  and  sound  sheep  as 


*Holroyd,  J.,  concurred.    Littledale,  J.,  dissented. 
*Statement  of  facts  omitted. 


- 


MATERIAL    ALTERATION  32o 


Ili 


1ATI 

were  delivered  to  the  said  G.  Brunskill  as  aforesaid;"  and  "jncase 
the  said  stock  of  sheep  should, -at  the  determination  of  the  saicTten- 
ancy,  be  reduced  or  deteriorated  in  number,  quality,  or  value, 
should  pay  to  II.  P.  Holme  compensation  for  such  reduction  or  de- 
terioration, to  be  ascertained  by  certain  arbitrators"  in  manner 
tliereinpjr>yideii]^  rly  and   every  year  during  the 

tenancy^nay^or.  cause-to-be.paid,  to  H.  P.  Holme,  by  way  of  rent 
orin|erest-fo^-thtr  sheep,  the  sum  of  £35  by  two  equal  half-yearly 
payments/^thenjdie  bond  should  be  void. 

^T5n~thlT9F[iof  November,  1875,  theplaintiff  gave  to  George  Brun- 
skill a  notice  to  quit  the  farm,  which  was  in  terms  a  notice  to  quit 
"Qn_th_e.lOth  of  April,  1876,  or  at  the  expiration  of  the  year  of  your 
tenancy,  which  shall  expire  next  after  the  expiration  of  one-half 
year  from  the  service  of  the  notice."  The  notice  being  served  less 
than  six  months  before  the  10th  of  April,  1876,  was  ineffectual  to 
determine  the  tenancy  on  that  day,  but  was  effectual  to  determine 
it  on  the  10th  of  April,  1877.  Before  the  10th  of  April,  1876,  George 
Brunskill  and  the  plaintiff  met,  and  George  Brunskill  objected  to  '. 
the  insufficiency  of  the  notice  to  quit.  Whereupon  the  plajntiff_stated 
that  he  did  not  wish  to  take  the  farm  from  him,  but  that  he  wanted  ft 
part  of  the  farm  called  the  Bog  Field,  and  it  was  thereupon  agreed 
tljat  George  Brunskill  _should  surrender  thison  the  luth  o£  April  V<- 
then  next,  and  that  his  rent  should  from  that  time  be  reduced 
by  £10  a  year,  and  that  the  notice  to  quit  should  be  considered 
as  withdrawn.  This  agreement  was  carried  into  effect,  and 
George  Brunskill  continued  to  hold  the  remainder  of  the  farm, 
but  early  in  .October  following,  the  plaintiff  gave  him  due  no- 
tice to  quit  on  the  10th  of  April,  1877.  Before  this  time  arrived 
George   Brunskill  got   into   difficulties   and   had_become   insolvent. 

is  trustee  sometime  in  March,  1877,  gave  up  the  farm,  and  it  was 
then  ascertained  that  the  flock  referred  to  in  the  bond  was  reduced 
in  number  and  deteriorated  in  quality  and  value ;  and  the  action  has 
been  brought  to  recover  from  the  defendant,  under  his  bond,  com- 
pensation for  the  diminished  value  of  the  flock. 

Mr.  Justice  Denman,  before  whom  the  action  was  tried,  gave 
judgment  for  the  defendant,  and  against  this  judgment  the  plaintiff 
lias  appeajed . 

One  ground  on  which  the  defendant  relied  in  supporting  the  judg- 
ment was,  that  his  obligation  under  the  suretyship  bond  had  expired 
before  the  deficiency  arose,  that  is  to  say,  that  by  the  notice  to  quit 
and  agreement  made  as  to  the  surrender  of  the  Bog  Field,  and  the 
withdrawal  of  the  notice,  a  new  tenancy  was  created,  to  which  the 
bond  did  not  apply ;  and  for  this  he  relied  on  the  case  of  Tayleur  v. 
Wildin,  Law  Rep.  3  Ex.  303,  as  an  authority,  that  under  the  circum- 
stances a  new  tenancy  was  created ;  and  it  was  on  the  authority  of 
Tayleur  v.  Wildin,  Law  Rep.  3  Ex.  303,  that  Mr.  Justice  Denman, 
as  we  understand,  principally  relied,  but  we  are  unable  to  agree  with 


324  SURETYSHIP    DEFENSES 

this  view.  In  Tayleur  v.  Wilclin,  Law  Rep.  3  Ex.  303,  the  tenant 
continued  in  the  occupation  of  the  farm  after  the  day  for  which  the 
notice  to  quit,  which  was  withdrawn,  had  been  effectually  given, 
and  the  rent  for  which  the  surety  was  sued  accrued  in  respect  of  the 
occupation  after  that  day.  and  the  court  considered  the  continuance 
of  the  tenant's  possession  after  that  time  as  a  new  tenancy,  and  that 
the  guaranty,  which  applied  only  to  the  old  tenancy,  was  therefore 
gone.  But  in  the  present  case  the  tenancy  of  George  Brunskill  was, 
in  fact,  determined  on  or  before  the  day  when,  if  the  notice  to  quit 
had  not  been  withdrawn,  it  would  have  ended.  The  deficiency  and 
deterioration  of  the  flock  therefore  occurred  at  the  determination 
of  the  very  tenancy  to  which  the  bond  referred.  It  was,  however, 
argued  that  the  effect  of  giving  up  the  Bog  Field  must  be  a  sur- 
render of  the  old  tenancy.  But  we  are  of  opinion  that  this  can  not 
be  maintained,  and  that  notwithstanding  the  surrender  to  a  landlord 
el  part  of  the  land  demised,  the  former  tenancy  of  the  remainder 
of  the  farm  still  continues. 

It  was  contended  by  .the  defendant,  that  even  if  there  was  a  con- 
tinuance of  the  old  tenancy  the  effect  of  the  surrender  of  the  Bog 
Field  was  to  discharge  him  as  surety  from  all  liability.  The  Bog 
Field  contained  about  seven  acres,  and  the  jury,  in  answer  to  a  ques- 
tion left  to  them,  at  the  trial,  found  that  the  new  agreement  with 
the  tenant  had  not  made  any  substantial  or  material  difference  in 
the  relation  between  the  parties,  as  regards  the  tenant's  capacity  to 
do  the  things  mentioned  in  the  condition  of  the  bond,  and  for  the 
breaches  of  which  the  action  was  brought.  The  plaintiff's  contend 
tion  was  that  this  must  be  treated  as  a  finding  that  the  alteration 
was  immaterial,  and  that,  except  in  the  case  of  an  agreement  to  give 
time  to  the  principal  debtor,  a  surety  was  not  discharged  by  an 
agreement  between  the  principals  made  without  his  assent,  unless 
it  materially  varied  his  liability  or  altered  what  was  in  express  terms 
a  condition  of  the  contract. 

In  my  opinion  this  contention  on  behalf  of  the  plaintiff  can  not 
be  sustaineiL  No  doubt  there  is  a  distinction  between  the  cases 
which  have  turned  on  the  creditor  agreeing  to  give  time  to  the  prin- 
cipal debtor,  and  the  other  cases.  Where  a  creditor  does  bind  him- 
self to  give  time  to  the  principal  debtor,  he,  with  an  exception  here- 
after referred  to,  does  deprive  the  surety  of  a  right  which  he  has, 
that  is  to  say,  of  the  right  at  once  to  pay  off  the  debt  which  he  has 
guaranteed,  and  to  sue  the  principal  debtor;  and  without  inquiry 
whether  the  surety  has,  by  being  deprived  of  this  right,  in  fact  suf- 
fered any  loss,  the  courts  have  held  that  he  is  discharged.  The  ex- 
ception to  which  I  have  referred  is,  where  the  creditor,  on  making 
the  agreement  with  the  principal  debtor,  expressly  reserves  his  right 
against  the  surety ;  but  this  reservation  is  held  to  preserve  to  the 
surety  the  right  above  referred  to,  of  which  he  would  be  otherwise 
deprived.    The  cases  as  to  discharge  of  a  surety  by  an  agreement 


MATERIAL    ALTERATION-  325 

made  by  the  creditor,  to  give  time  to  the  principal  debtor,  are  only 
an  exemplification  of  the  rule  stated  by  Lord  Loughborough  in  the 
case  of  Rees  v.  Berrington,  2  Ves.  Jr.  540:  "It  is  the  clearest  and 
most  evident  equity  not  to  carry  on  any  transaction  without  the 
knowledge  of  him  (the  surety),  who  must  necessarily  have  a  con- 
cern in  every  transaction  with  the  principal  debtor.  You  can  not 
keep  him  bound  and  transact  his  affairs  (for  they  are  as  much  his 
as  your  own)  without  consulting  him." 

The  true  rule  in  my  opinion  is,  that  |iVf_  there  is  any  agreement 
between__tlie.  principals  with  reference  to  the  contract  guaranteed, 
trie^surety^ ought-to-be  consulted,  and  that  if  he  has  not  consented 
to  the  alteration,  although  in  cases  where  it  is  without  inquiry  evi- 
dent that  the  alteration  is  unsubstantial,  or  that  it  can  not  be  other- 
wise than  beneficial  to  the  surety,  the  surety  may  not  be  discharged; 
yet,  that  if  it  is  not  self-evident  that  the  alteration  is  unsubstantial, 
or  one  which  can  not  be  prejudicial  to  the  surety,  the  court  will  not. 
in  an  action  against  the  surety,  go  into  an  inquiry  as  to  the  effect  of  ■- 
the  alteration,  or  allow  the  question,  wl:urd]er_jLli£--suFety  is  dis- 
charged or  noL-to.be  determined  by  the  finding  of  a  jury  as  to  the 
maTenalrtyof  the  alteration  or  on  the  question  whether.it  is  to  the 
prejudice  of  the  surety,  but  will  hold  that  in  such  a  case  the  surety 
himself  must  be  the  sole  judge  whether  or  not  he  will  consent  to 
rcmainJiaJilejiatwithstanding  the  alteration,  and  that  if  he  has  not  so 
consented  he  will  be  discharged.  This  is  in  accordance  with  what 
is  stated  to  be  the  law  by  Amphlett,  L.  J.,  in  the  Croydon  I  '.as  Com- 
pany v.  Dickenson,  2  C.  P.  D.,  at  p.  51. 

The  plaintiff,  in  support  of  his  contention,  that  having  regard  to 
the  finding  of  the  jury,  the  surety  was  not  discharged,  relied  on  va- 
rious dicta  to  the  effect  that  any  material  change  in  the  contract  be- 
tween the  principals  will  discharge  the  surety.  Even  if  by  these  ex- 
pressions the  judges  intended  to  state  that  to  have  the  effect  of  re- 
leasing the  surety  the  alteration  must  be  material,  does  not  follow 
that  they  intended  to  lay  down  that  no  alteration  would  discharge 
the  surety  unless  the  jury,  in  an  action  to  enforce  his  liability,  held 
it  to  be  material,  or  to  express  any  opinion  at  variance  with  the 
rule  laid  down  by  me.  The  case  of  Sanderson  v.  Aston  was  specially 
relied  on  by  the  plaintiff.  But  Martin,  B.,  though  he  did  not  for- 
mally dissent  from  the  decision  of  the  majority  of  the  court,  was  not 
satisfied  with  the  judgment ;  and  if  the  decision  is  to  be  considered 
as  based  on  the  reason  given  by  Pollock,  B.,  that  the  court  was  en- 
titled to  consider  whether  the  alteration  was  material,  it  can  not,  in 
our  opinion,  be  sustained. 

In  the  present  case,  although  the  Bog  Field  contained  seven  acres 
only,  yet,  it  can  not  be  said  to  be  evident  that  the  surrender  of  it 
could  not  prejudicially  affect  the  surety.  Some  of  the  witnesses  for 
the  plaintiff  admitted  that  it  was  occasionally  used  for  pasturing, 
that  its  loss  would  be  appreciable  in  the  spring,  and  that  it  might 


326  SURETYSHIP    DEFENSES 

make  a  difference  of  fifteen  in  the  number  of  the  sheep  which  the 
farm  would  carry. 

The  case  may  also  be  considered  in  another  point  of  view.  The 
bond  given  by  the  defendant,  the  surety,  was  to  guarantee  the  de- 
livery up  of  the  flock  of  sheep  therein  referred  to  at  the  determina- 
tion of  the  tenancy  of  the  Riggindale  Farm,  which,  in  our  opinion, 
must  mean  Riggindale  Farm  as  then  demised  to  George  Brunskill, 
and  the  bond  certainly  implied  that  he  should  continue  to  hold  the 
farm  as  then  demised  till  the  flock  was  given  up.  The  contention  of 
the  plaintiff,  if  it  could  be  supported,  would  make  a  variation  in  this 
contract,  as  to  the  materiality  of  which  there  is  at  least  a  doubt,  and 
would  make  the  defendant  liable  for  a  deterioration  of  the  flock 
during  the  time  when  the  tenant  held  a  smaller  farm  than  that  con- 
templated by  the  contract  of  the  surety. 

The  plaintiff's  counsel  relied  on  some  observations  made  by  Lord 
Cottenham  in  the  case  of  Hollier  v.  Eyre,  9  H.  L.  C.  57.  But,  in 
fact,  those  observations  are  in  favor  of  the  defendant  and  not  of  the 
plaintiff.  What  Lord  Cottenham  says  is,  "The  surety  will  be  left  to 
judge  for  himself  between  his  original  undertaking  and  another  sub- 
stituted for  it,  but  that  is  not  the  case  where  the  contract  remains 
the  same,  though  part  of  the  subject-matter  is  withdrawn  from  its 
operation."  In  this  case,  as  already  pointed  out,  the  original  con- 
tract of  the  surety  was  that  the  flock  should  be  delivered  up  in  good* 
condition,  together  with  the  farm,  as  then  demised  to  the  tenant.  \ 
No  part  of  that  which  was  guaranteed  was  ever  withdrawn  from  the 
operation  of  the  bond.  But  the  plaintiff  attempts  to  substitute  for 
the  contract  that  the  flock  should  be  given  up  in  good  condition, 
with  the  farm,  as  then  demised,  a  contract  that  it  should  be  delivered, 
up  in  like  condition  with  a  farm  of  different  extent.  In  myopinion  ■ 
the  surety  ought  to  have  been  asked  to  decide  whether  he  would 
assent  to  the  variation.  He  never  did  so  assent,  and  in  my  opinion 
was  discharged  from  liability,  notwithstanding  the  finding  of  the 
jury,  inasmuch  as  in  my  opinion  the  question  was  not  one  which 
I  ought  to  have  been  submitted  to  them. 

Lord  Justice  Thesiger  concurs  in  this  judgment. 

Brett,  L.  J. :  I  speak  with  great  deference  when  I  say  I  can  not 
bring  my  mind  altogether  to  agree  with  this  judgment,  and  I  feel 
bound  to  observe  that  I  arrive  at  another  view  than  that  which  has 
been  expressed.  As  to  the  first  part  of  the  judgment  I  entirely  agree. 
I  do  not  think  there  was  any  new  tenancy,  and  I  ground  that  view 
on  the  fact  of  the  finding  of  the  jury,  amongst  other  things,  that  the 
alteration  was  immaterial.  It  is  the  latter  part  of  this  view  with 
which  I  can  not  agree.  In  the  first  place,  this  case  comes  before  us 
fettered  by  certain  rules.  We  are  bound  to  observe  that  it  is  a  direct 
appeal  from  the  decision  of  my  Brother  Denman,  after  a  trial  by 
jury ;  we  are,  therefore,  not  at  liberty  to  ask  whether  the  question 
he  left  was  left  in  proper  form.   There  can  not  be  a  motion  here  for 


MATERIAL    ALTERATION" 


327 


misdirection,  and  we  are  not  at  liberty  to  say  that  the  finding  of  the 
jury  was  contrary  to  the  evidence.  It  is  a  general  rule  that  we  have 
no  right  to  look  at  the  verdict,  but  accept  it  according  to  its  ordinary 
construction.  I  find  the  question  left  to  the  jury  was,  whether  the 
new  agreemenFwith  the  tenant,  which  we  are  told  did  not  alter  the 
tenancy,  made  a  substantial  or  material  difference  in  the  relation  be- 
tween" The  parties  as  to  the  tenant's  capacity  to  do  the  things  men- 
tionecTin  the  bond,  and  for  breach  of  which  the  action  was  brought. 
ThWTiot  only  found  that,  but  my  brother  Denman  says  that  the 
matter  is  far  more  fit  for  the  consideration  of  a  jury  of  the  county 
of  Cumberland  than  for  a  lawyer,  and  he  can  not  say  that  he  is  dis- 
satisfied with  their  view.  Therefore  there  is  the  finding  of  the  jury 
with  the  assent  of  the  judge.  If  it  were  necessary  to  give  an  opin- 
ion, considering  I  have  not  an  intimate  knowledge  of  these  things, 
but  from  what  I  know  of  Cumberland  farmers,  so  far  from  dissent- 
ing from  the  opinion  of  the  jury,  I  think  it  is  a  substantial  finding. 
When  one  remembers  how  many  views  are  taken  as  to  farms  in 
Cumberland,  I  should  be  inclined  to  agree  with  the  jury  and  to  say 
it  did  not  make  any  material  difference.  We  are  bound  by  that  find- 
ing, and  can  act  in  conformity  with  it.  Where  there  is  a  surety- 
ship bond,  and  there  are  some  alterations  in  the  contract  or  relation 
Jof  the  parties  under  the  bond  as  to  guaranteeing  its  performance, 
[the  question  is  whether  the  surety  is  released.  I  can  not  bring  my 
mind  to  think  he  is,  for  the  law  takes  no  notice  of  alterations  that 
[are  neither  materialnor  specific.  I  The  proposition  of  law  as  to  sure- 
tyship to  which  I  assent  is  this,  if  there  is  a  material  alteration  of 
the  relation  in  a  contract,  the  observance  of  which  is  necessary,  and 
if  a  man  makes  himself  surety  by  an  instrument  reciting  the,  prin- 
cipaTrelation  or  contract,  in  such  specific  terms  as  to  make  the  ob- 
servance of  specific  terms  the  condition  of  his  liability,  then  any 
alteration  which  happens  is  material;  but  where  the  surety  makes 
himself  responsible  in  general  terms  for  the  observance  of  certain 
relations  between  parties  in  a  certain  contract  between  two  parties 
he  is  not  released  by  an  immaterial  alteration  in  that  relation  or 
contract.  My  opinion  is  in  accordance  with  the  finding  of  the  jury, 
and  it  will  be  most  dangerous  in  this  particular  case  to  put  ourselves 
in  the  place  of  a  jury,  and  because  we  think  seven  acres  may  nr.ke 
a  difference,  or  £10  a  year,  may  make  a  difference,  to  set  aside  the 
finding  of  the  jury,  which  is  that  neither  one  is  material  or  substan- 
tial. I  think  the  surety  is  not  released.  The  doctrine  of  the  release 
of  suretyship  is  carried  far  enough,  and  to  the  verge  of  sense,  and 
I  shall  not  be  one  to  carry  it  any  further. 
Judgment  affirmed. 


^ 


4 


328  SURETYSHIP    DEFENSES 


CHANDLER  LUMBER  COMPANY,  APPELLANT,  v. 
RADKE,  RESPONDENT 

136  Wis.  495,  118  N.  IV.  185,  22  L.  R.  A.  (N.  S.)  713n  (1908). 

Plaintiff,  lumber  dealer  in  Chicago,  on  July  17,  1906,  had  agreed 
upon  a  sale  of  two  bills  of  lumber,  specified  in  detail  for  two  house?, 
for  which  one  H.  Schutte,  a  builder,  had  taken  contract,  amounting 
to  $2,160,  and  before  shipment  thereof  the  defendant  executed  a 
guaranty  in  part  as  follows : 

"I  guarantee  the  payment  of  the  above  amount  to  you  for  lumber 
and  building  material  purchased  of  you  by  Mr.  H.  Schutte  to  be 
delivered  free  on  board  cars,  Madison,  Wis.,  as  per  your  estimates 
number  2113  and  2134  dated  July  8th  and  17th,  1906;  payment  to 
be  made  within  sixty  days  after  date  of  invoice,  provided  same  is 
found  as  specified  in  your  estimates  above  referred  to." 

Schutte  was  without  capital,  but  had  worked  for  defendant,  who 
had  confidence  in  him.  \  Plaintiff  promptly  commenced  shipping  such 
lumber  in  carload  lots ;  said  cars  being  shipped  so  that  it  was  to  be 
delivered  to  Schutte  only  upon  his  payment  of  the  freight,  for 
which  he  was  allowed  credit  by  the  plaintiff.  Afterward  Schutte, 
having  obtained  other  contracts,  commenced  ordering  the  lumber 
therefor  also  from  the  plaintiff,  and  thereafter  carload  shipments 
were  made  containing  both  the  lumber  on  the  first  two  estimates 
guaranteed  by  defendant  and  on  other  orders.  The  latter  part  of 
October,  Schutte  absconded,.  The  plaintiff's  representative,  who  had 
made  the  sales  and  had  full  charge  of  the  dealings  and  collections 
from  Schutte,  came  to  Madison,  found  a  quantity  of  lumber  stored 
by  Schutte  in  a  vacant  building,  and  seized  and  returned  the  same 
to  Chicago.  This  action  was  brought  to  recover  from  the  defendant 
the  entire  sum  of  the  first  two  estimates,  $2,160. 

The  defenses  were,  first,  that  by  shipping  to  Schutte  subject  to 
the  freight  bills,  whereby  he  had  been  compelled  to  pay  sums 
amounting  to  over  $150  before  he  could  obtain  the  lumber,  the  plain- 
tiff had  materially  departed  from  and  modified  the  contract  and  dis- 
charged the  guarantor ;  second,  that  by  the  seizure  and  recaption  of 
a  part  of  the  lumber  which  had  been  delivered  under  this  guaranty 
plaintiff  had  deprived  Schutte  and  the  defendant  of  the  benefit 
which  would  have  resulted  from  completed  performance  of  the  con- 
tract, and  therefore  discharged  the  defendant  as  guarantor.  Also 
that  plaintiff  had  received  as  payment  upon  said  guaranteed  debt 
the  $1,500,  the  freight  advances  of  $153,  and  the  value  of  the  lumber 
so  reclaimed  after  Schutte's  disappearance 

This  action  was  tried  to  a  jury  and  a  special  verdict  rendered  to 
the  following  effect:  (1)  That  plaintiff  did  not  inform  the  defend- 
ant of  any  custom  that  the  purchaser  should  pay  and  have  credit 


MATERIAL    ALTERATION  329 

for  freight  on  lumber  shipped  f.  o.  b.  Madison ;  (2)  that  plaintiff  did 
apply  $1,500  payment  upon  the  two  estimates  guaranteed  by  the 
defendant;  (3)  that  the  value  of  the  lumber  from  the  guaranteed 
shipments  which  plaintiff  took  back  was  $150;  (4)  that  defendant 
did  not  consent  that  such  lumber  be  taken.  This  verdict  was  as- 
sailed by  all  necessary  motions  to  raise  the  questions  discussed  on 
this  appeal,  but  the  court  held  thereon  that,  by  imposition  of  the 
conceded  burden  of  freight  before  the  lumber  could  be  received  by 
Schutte  from  the  railroad  company,  the  contract  had  been  mate- 
rially modified  and  defendant  discharged  from  his  guaranty ;  also 
that  by  the  recaption  of  lumber  which  had  been  delivered  and  was 
needed  to  build  the  buildings  specified  in  the  estimates,  the  contract 
had  been  modified  to  the  hurt  of  the  defendant  and  he  discharged. 
Accordingly  judgment  was  rendered  for  the  defendant,  from  which 
the  plaintiff  appeals. 

Dodge,  J. :  Error  is  assigned  upon  the  holding  of  the  trial  court 
that  the  shipping  of  the  lumber  so  that  the  purchaser,  Schutte, 
could  not  obtain  it  at  Madison  except  by  paying  the  freight  charges 
thereon  was  a  departure  from  the  terms  of  the  contract,  and  evi- 
dence was  offered  to  prove  a  custom  to  so  ship  lumber  even  under 
a  contract  for  its  delivery  free  on  board  at  its  place  of  destination. 
The  court's  ruling  in  this  respect  must  be  approved.  The  expres- 
sion "free  on  board"  in  a  contract  like  this  is  not  ambiguous  and 
therefore  not  open  to  construction  either  by  proof  of  custom  or 
otherwise.  Vogt  v.  Schienebeck,  122  Wis.  491,  100  N.  W.  820; 
Fromme  v.  O'Donnell,  124  Wis.  529,  532,  103  N.  W.  3.  /Tree  on 
board  cars.  Mjidismu'l-means.  .that  the  plaintiff,  in  order  to  perform 
its  contract  must  deliver  the  lumber  on  -board  cars  at  Madison, 
Wis.,  free  to  be  taken  by  the  purchaser  without  any  obstruction, 
burden  or  impediment.  It  is  not  so  delivered  when,  in  order  to 
taT<e~  it  into  his" possession,  he  must  discharge  a  lien  thereon  for 
freight. 

But  appellant  further  contends  that,  even  though  this  were  a  de- 
parture from  the  terms  of  the  contract,  the  surety  is  not  thereby 
discharged,  for  that  the  variation  was  not  prejudicial  to  him,  since 
Schutte  received  credit  for  the  amount  of  freight  which  he  paid 
and  thereby  reduced  the  indebtedness  for  which  the  defendant  as 
surety  was  liable.  It  is  elementary  that  a  surety  is  favored  in  the 
law.  As  he  ordinarily  does  not  receive  the  benefit  of  the  contract,  but 
is  a  mere  volunteer,  he  has  a  right  to  define  exactly  the  conditions 
upon  which  he  shall  be  responsible  for  the  debt  of  another,  and  only 
upon  compliance  with  those  conditions  can  he  be  held  to  such  lia- 
bility. 1  Brandt  Suretyship  (3d  ed.),  427;  W.  W.  Kimball  Co.  v. 
Baker,  62  Wis.  526,  22  N.  W.  730;  Stephens  v.  Elver,  101  Wis. 
392,  77  N.  W.  737;  Cowdery  v.  Hahn,  105  Wis.  455,  81  N.  W.  882 ; 
Electric  A.  Co.  v.  U.  S.  F.  &  G.  Co.,  110  Wis.  434.  85  N.  W.  648; 
Omaha  Nat.  Bank  v.  Johnson,  111  Wis.  372,  87  N.  W.  237;  Charley 


330 


SURETYSHIP    DEFENSES 


v.  Potthoff,  118  Wis.  258,  265,  95  N.  W.  124.  While  this  rule  was 
originally  enforced  with  entire  strictness,  it  is  now  subject  to  cer- 
tain exceptions,  among  which  the  only  one  claimed  to  be  relevant 
to  the  present  situation  is  set  forth  in  Stephens  v.  Elver,  supra, 
namely,  if  the  variation  appear  to  be  wholly  immaterial  and  without 
prejudice  to  the  surety's  rights  it  will  be  ignored.  Of  course  the 
V principle  remains  that  the  surety  may  determine  and  specify  the 
exact  terms  upon  which  he  will  be  liable  and  has  a  right  to  stand 
upon  those  terms,  and  it  is  only  when  a  court  is  able  to  say  with 
certainty  that  an  expression  in  the  contract  apparently  declaring 
a  condition  of  such  liability  is  so  immaterial  to  him  and  departure 
therefrom  so  necessarily  without  prejudice  that  it  can  not  believe 
in  an  intention  of  the  parties  to  express  it  as  a  condition  of  liabil- 
ity does  the  above  noted  exceptions  apply.  In  the  instant  case, 
while  the  reduction  of  Schutte's  indebtedness  by  the  amount  of  the 
freight  probably  would  be  beneficial  rather  than  injurious  to  the 
defendant  under  most  circumstances,  yet,  when  we  remember  that 
it  was  made  to  appear  that  Schutte  was  engaging  in  the  business 
of  a  building  contractor  almost  wholly  without  means  of_  his  own, 
and  his  ability  to  pay  for  the  materials  and  labor  in  any  given  piece 
of  work  depended  upon  his  completion  thereof  and  consequent  re- 
ceipt of  the  contract  price,  which,  as  we  know,  is  usually  in  large 
part  withheld  pending  such  completion,  it  becomes  apparent  that 
any  obstacle  placed  in  the  way  of  speedy  completion  enhanced  the 
danger  of  his  becoming  involved  by  pressing  indebtedness  and  the 
interruption  of  his  work  by  creditors.  It  can  not  be  doubted,  there- 
fore, that  the  provision  for  sixty  days'  credit  upon  the  lumber 
which  entered  into  these  two  building  contracts,  amounting  to 
about  $2,000,  was  of  the  greatest  importance  in  promoting  the  prob- 
ability of  his  success  and  consequent  ability  to  meet  debts.  To  that 
end,  even  a  small  amount  of  cash  might  be  very  important,  and  the 
deprivation  thereof  seriously  prejudicial.  The  $150  which  he  was 
obliged  to  pay  in  cash  in  order  to  obtain  these  materials  might  well 
have  enabled  the  hiring  of  labor  or  the  purchase  of  such  materials 
as  he  could  not  obtain  upon  credit  and  which  were  necessary  to  the 
completion  of  the  work.  We  are,  therefore,  brought  to  substantial 
agreement  with  the  trial  court  on  the  proposition  that|the_req.uire-/ 
ment  that  Schutte  pay  about  seven  per  cent,  of  the  price  of  this! 
lumber  in  cash  instead  of  upon  a  credit  of  sixty  days  was  a  de-/ 
parture.from  the  terms  of  the  contract  which  we  can  not  say  with) 
any  degree  of  certainty  was  immaterial  or  without  prejudice  to  the 
surety.  If  Schutte,  as  appears  to  have  been  the  case,  assented  to 
this  modification,  the  contract  was  changed  without  the  consent  or 
approval  of  the  surety.  If  he  did  not  consent,  the  plaintiff  has 
failed  in  the  performance  of  its  contract  in  a  respect  material  to 
the  surety's  promise,  which  in  either  case  is  not  en  forcible.    W.  W. 


MATERIAL    ALTERATION  331 

Kimball  Co.  v.  Baker,  62  Wis.  526,  531,  22  N.  W.  730;  Charley 
v.  Potthoff,  supra;  Walrath  v.  Thompson,  6  Hill  540. 

As  this  conclusion  must  result  in  affirmance  of  the  judgment,  no 
discussion  of  the  sufficiency  of  the  other  grounds  upon  which  it 
rests  need  be  indulged. 

By  the  court — judgment  affirmed. 

Kerwin,  J.  (dissenting)  :  I  can  not  agree  with  the  majority 
opinion  that  the  payment  of  freight  changed  the  contract  in  any 
material  particular.  The  amount  of  freight  paid  was  simply  an 
advancement  of  a  portion  of  the  purchase-price  before  the  same 
became  due,  and  was  credited  upon  the  contract.  While  Schutte 
was  not  required  to  pay  any  portion  of  the  purchase-price  before 
due,  still  the  payment  of  the  freight,  which  was  credited  upon  the 
purchase-price  and  decreased  to  that  extent  the  obligation  of  the 
surety,  can  not,  in  my  opinion,  be  held  a  material  alteration  of  the 
contract,  unless  it  can  be  said  to  have  prejudiced  the  surety.  There 
is  nothing  in  the  record  tending  in  the  least  to  show  that  it  did, 
and  therefore  I  can  not  see  that  such  payment  discharged  the  surety. 
Stephens  v.  Elver,  101  Wis.  392,  77  N.  W.  737;  Madison  v.  Am. 
S.  E.  Co.,  118  Wis.  480,  95  N.  W.  1097;  Grafton  v.  Hinkley,  111 
Wis.  46,  86  N.  W.  859,  and  cases  there  cited ;  Rice  v.  Filene,  6 
Allen  230;  Groendvke  v.  Musgrave,  123  Iowa  535,  99  N.  W.  144; 
Feustmann  v.  Estate  of  Gott,  65  Mich.  592,  32  N.  W.  869 ;  Stearns 
Suretyship,  72;  1  Brandt  Suretyship  (3d  ed.),  428,  445.  The  sixty 
days'  credit  upon  the  whole  amount  of  the  purchase  was  in  this 
case  for  the  benefit  of  Schutte,  and  the  waiver  of  it  to  the  extent 
of  the  amount  of  freight  advanced  did  not  prejudice  the  surety,  as 
appears  from  the  record ;  and,  this  being  so,  there  was  no  material 
alteration  of  the  contract.  I  do  not  think  the  case  before  us  is 
one  where  the  principals  to  the  contract,  without  the  consent  of  the 
surety,  changed  the  terms  of  the  credit  to  the  prejudice  of  the 
surety  in  the  sense  of  the  cases  laying  down  that  rule.  Nor  do  I 
think  there  was  any  breach  of  the  contract,  but,  even  if  there  was 
a  technical  breach,  it  was  without  prejudice  to  the  surety,  and  there- 
fore wholly  immaterial.! 

I  think  the  judgment  below  should  be  reversed. 

Timlin  and  Marshall,  JJ. :  We  concur  in  the  foregoing  dissent- 
ing opinion  of  Mr.  Justice  Kerwin. 

See  also  Koppitz-Melchers  Brewing  Co.  v.  Schultz,  68  Ohio  St.  407,  67  N. 
E.  719;  Prior  v.  Kiso,  81  Mo.  241 ;  Evans  v.  Lawton,  34  Fed.  233. 


332 


SURETYSHIP    DEFENSES 


(b)    Negotiable  Instruments 

HIRAM  G.  WATERMAN  v.  WALTER  S.  VOSE  ET  AL. 

43  Maine  504  (1857). 

Tenney,  C.  J.:  The  note  in  suit  for  the  accommodation  of 
Amaziah  Nash,  the  maker,  was  written  by  Vose,  one  of  the  firm 
of  "Vose  &  Joyce,"  and  signed  by  him  with  the  name  of  the  firm, 
without  the  words  "with  interest."  In  pursuance  of  the  previous 
arrangement  between  Nash  and  the  plaintiff,  it  was  offered  by  Nash 
in  payment  of  a  yoke  of  oxen  which  he  had  agreed  to  purchase  of 
the  plaintiff ;  the  latter  insisting  that  the  note  should  be  on  interest, 
these  words  were  added  by  Nash  in  the  presence  of  the  plaintiff 


without  the  knowledge  or  consent  of  the  defendants.  Whether 
Nash  signed  the  note-at^theH;4Tne_af"'rts  indorsement  by  the  defend- 
ants, or  afterward,  was  a  question  on  which  Nash  and  Vose  did 
not  agree ;  and  under  the  instructions  it  was  not  a  material  ques- 
I  tion. 

It  was  contended  that  the  description  of  the  note  in  the  written 
notice  of  its  dishonor,  was  so  defective,  the  words  "with  interest" 
being  omitted,  that  the  liability  of  the  indorsers  never  become  fixed. 
The  jury  were  instructed  that  if  they  should  find  that  the  defend- 
ants, by  said  notice,  might  be  presumed  to  know  it  referred  to  the 
note  in  suit,  they  might  find  it  to  be  sufficient.  This  instruction  was 
correct,  on  the  authority  of  the  case  of  Smith  v.  Whitney,  12  Mass. 
6,  in  which  a  question  similar  in  principle  was  submitted  to  the  jury. 

If  this  question  was  for  the  court  instead  of  the  jury,  we  are 
satisfied  it  was  correctly  settled,  and  the  defendants  were  not  preju- 
diced. 

The  jury  were  instructed,  that  the  addition  of  the  words  "with 
interest"  to  the  note,  after  it  was  indorsed  by  the  defendants,  was 
a  material  alteration.  But  they  were  also  instructed,  substantially, 
that  if  the  words  were  added  without  fraud,  and  without  the 
knowledge  of  the  defendants,  before  the  note  was  delivered  to  the 
plaintiff,  whether  the  maker  signed  his  name  at  the  time  it  was  in- 
dorsed, or  at  the  time  the  note  was  delivered,  the  alteration  did  not 
discharge  the  defendant's  liability. 

These  instructions  when  applied  to  an  alteration  in  an  accommo- 
dation note  or  bill,  made  by  the  consent  of  the  parties  to  he  affected 
by  it,  are  correct ;  but  not  so,  when  the  alteration  is  not  made  with 
the  knowledge  and  consent  of  such  parties.  In  the  case  of  Master 
v.  Miller,  4  D.  and  E.  320,  it  was  decided  that  the  alteration  of  the 
date  of  the  note  avoids  it,  or  a  bill  of  exchange,  by  which  the  pay- 
ment was  accelerated,  and  after  acceptance,  and  so  effectually  that 
even  an  innocent  holder  for  a  valuable  consideration,  can  not  sup- 
port an  action  upon  it. 


(LS^-W~U\ 


M  ATERIAL    ALTEP.ATIOX 


In  1  Greenl.  Ev.,  §  565,  it  is  said,  "the  grounds  of  this  doctrine 
is  two-fold.  The  first  is,  that  of  public  policy  to  prevent  fraud,  by 
not  permitting  a  man  to  take  the  chance  of  committing  a  fraud 
without  running  the  risk  of  losing  by  the  event,  when  it  is  detected. 
The  other  is  to  insure  the  identity  of  the  instrument,  and  prevent 
the  substitution  of  another,  without  the  privity  of  the  party  con- 
cerned. The  instrument  derives  its  legal  virtue  from  its  being  the 
sole  repository  of  the  agreement  of  the  parties,  solemnly  adopted  ' 
as  such,  and  attested  by  the  signature  of  the  party  engaged  to  per- 
form it." 

The  law  carefully  guards  the  rights  of  sureties  upon  an  instru- 
ment, whether  the  relation  to  the  principal  is  shown  by  his  being 
surety  in  the  technical  sense  of  the  term,  indorser  or  otherwise.  A 
promissory  note,  signed  by  principal  and  surety,  or  a  note  or  bill 
indorsed  for  the  accommodation  of  another  party  thereto,  defines 
the  liability  intended  to  be  assumed,  and  /any  alteration  changing  ( 
this_ ^liability  without  his  consent  will  discharge  him ;  such  as  the 
change  of  the  date,  the  amount,  the  time  or  place  of  payment. 

It  was  held  in  Miller  v.  Stewart,  9  Wheat.  680,  that  the  contract 
of  surety  is  to  be  construed  strictly,  and  is  not  to  be  extended  be- 
yond the  fair  scope  of  its  terms.  Judge  Story,  in  delivering  the 
opinion  of  the  court  in  this  case,  says :  "Nothing  can  be  clearer, 
both  upon  principle  and  authority,  than  the  doctrine  that  the  pliability  I 
of  the  surety  is  not  to  be  extended  beyond  the  terms  of  his  contract. 
To  the  extent  and  in  the  manner,  and  under  the  circumstances 
pointed  out  in  the  obligation,  he  is  bound,  and  no  farther.  It  is  not 
sufficient  that  he  sustain  no  injury  by  a  change  in  the  contract,  or 
that  it  may  be  even  for  his  benefit.  lie  has  a  right  to  stand  upon 
the.  very  terms  of  his  contract,  and  iFTiedoes  not  assent  to  any 
variation  of  it,  and  a  variation  is  made,  it  is  fatal.  This  doctrine 
certainly  does  not  fail  to  apply  to  a  contract  which  has  been  al- 
tered materially,  after  it  has  passed  from  the  hands  of  the  surety 
or  indorser,  though  it  has  not  been  delivered  to  the  party  authorized 
to  treat  it  as  available.  |After  a  material  alteration,  it  is  not  the  con- 
tract the_party  signed,  and  a  negotiation  first  made  after  the  altera- 
tion can  not  make  it  his  contract,  j  The  distinction  in  the  instructions 
has  no  foundation  in  reason  or  in  law. 

When  a  person  puts  his  name  to  paper,  which  is  full  in  form, 
f orj^  certain  sum  payable  at  a  certain  time  and  place,  for  the  ac- 
commodation of  another,  who  is  to  become  a  party  to  the  same,  when 
it  shall  be  negotiated,  his  liability  is  limited  by  the  precise  terms  of 
that  paper.  .An.  alteration  afterward,  which  is  material,  without 
his  consent,  will  make  it  a  contract  which  he  never  executed,  and 
which  it  is  manifest  he  never  intended  to  execute,  and  it  is  a  new 
contract,  to  which  he  can  in  no  sense  be  treated  as  a  party,  and  he 
can  not  be  bound  by  it.  It  bears  no  analogy  to  the  case  where  one 
signs  or  indorses  blank  notes  or  bills,  to  be  filled  by  the  party  to  be 


334  SURETYSHIP    DEFENSES 

accommodated,  according  to  his  discretion  and  supposed  necessities. 
In  England,  under  the  stamp  acts,  a  note  or  bill  materially  al- 
tered, even  by  consent  of  parties,  without  a  new  stamp,  is  void. 
And  it  has  been  said  in  English  elementary  treatises,  that  "an  ac- 
commodation bill  is  not  issued  so  as  to  be  incapable  of  alteration, 
until  it  comes  into  the  hands  of  one  entitled  to  treat  it  as  an  availa- 
ble security."  2  Stark.  Ev.,  295,  note  (g).  This  note,  in  the  ab- 
stract, would  seem  to  support  the  instructions  which  we  are  now 
considering.  But  the  authority  cited  by  Mr.  Starkie  will  show  that 
the  alteration  was  by  consent  of  the  party  attempted  to  be  charged 
and  the  defense,  that  the  contract  was  void,  was  upon  the  ground 
that  every  bill  shall  have  a  stamp,  which  was  not  upon  the  one  in 
question  after  the  alteration.  But  the  court  held  that  the  bill  not 
having  become  effectual  before  the  alteration,  it  was  not  thereby 
a  new  contract. 

In  this  case  the  defendants  assumed  a  liability  for  the  sum  of  two 

\  hundred  and  sixty  dollars,  at  the  end  of  seven  months,  and  no 
other.  The  alteration  made  the  note  for  a  larger  sum  at  the  same 
time.  The  instructions  were  not  based  upon  the  hypothesis  that 
the  alteration  was  with  the  consent  of  the  defendants,  and  were 
unauthorized  in  law. 

If  the  courts  should  be  of  the  opinion  that  the  alteration  in  the 
note  in  suit  renders  it  void,  it  is  proposed  that  the  interest  thereon 
should  be  remitted,  so  far  as  it  accrued  previous  to  the  maturity 
of  the  note,  and  the  plaintiffs  be  allowed  to  strike  from  the  same 

-  the  added  words.  It  is  sufficient  for  this  court,  sitting  as  a  court 
of  law,  to  decide  the  questions  of  law  raised  at  the  trial,  to  say, 
that  such  a  motion  is  not  before  it,  and  can  not  be  entertained.  But 
it  may  not  be  improper  to  remark,  that  by  the  authorities  referred  to, 
the  general  proposition  is,  that  kvritteiiJiistmments  which  are  al- 
tered,  in  the  legal  sense  of  that  term,  and  are  thereby  made  void,  and 
to  allow  the  note  to  be  placed  in  the  condition  in  which  it  was  when 
indorsed,  would  annul  one  of  the  foundations  on  which  the  prin- 
ciple rests,  to  wit,  "public  policy,"  to  prevent  fraud,  by  not  permit- 

j  ting  a  man  to  take  the  chance  of  committing  a  fraud,  without  run- 
ning any  risk  of  losing  by  the  event,  when  it  is  detected. 

Exceptions  sustained,  verdict  set  aside,  and  new  trial  granted. 


ALANSON  T.  FAY  ET  AL.  v.  WEBSTER  SMITHS 

1  Allen  (Mass.)  477,  79  Am.  Dec.  752  (1861). 

Contract  upon  a  promissory  note,  signed  upon  its  face  by  H.  M. 
Reed,  bearing  upon  its  back  the  name  of  the  defendant,  payable 
in  ten  months  from  date  to  the  order  of  Joshua  Hobart,  and  in- 
dorsed by  Hobart  to  the  plaintiffs.     The  answer  set  up  a  material 


(/     L 

MATERIAL    ALTERATION"  335 

alteration  of  the  note  after  the  defendant's  name  was  put  upon  it, 
by_the  addition  of  the  words  "with  interest,"  but  it  was  not  alleged, 
or  contended  at  the  trial,  that  this  alteration  was  made  with  fraud- 
ulent intent.  At  the  trial  in  the  superior  court,  Putnam,  J.,  ruled 
thatTeWn  "if  the  fact  set  up  in  the  answer  was  proved,  the  plaintiffs 
were  entitled  to  recover  the  amount  of  the  principal,  with  interest 
after  the  expiration  of  ten  months,  and  a  verdict  was  returned  ac- 
cordingly.    The  defendant  alleged  exceptions. 

Hoar,  J.:  The  defendant,  not  being  named  as  a  party  to  the 
note  in  suit,  placed  his  name  upon  the  back  of  it,  before  it  was 
delivered  by  the  promisor,  Reed,  to  the  payee,  and  thereby,  accord- 
ing to  the  settled  law  of  Massachusetts,  made_himself  jointly  liable  - 
as  an  original  promisor.  The  note,  when  he  thus  placed  his  name 
upon  it,  was  not  payable  with  interest;  but  the  other  promisor  had 
agreed  with  the  payee  to  give  him  a  note  bearing  interest,  and  the 
words  "with  interest"  were  added  by  the  procurement  of  the  payee, 
and  with  the  assent  of  Reed,  but  without  the  knowledge  or  author- 
ity of  the  defendant;  and  with  this  alteration  the  note  was  taken 
byjhe  payee  and  indorsed  to  the  plaintiffs. 

The  plaintiffs  contended  at  the  trial  that,  the  alteration  having 
fbeen  made  without  fraudulent  intent,  they  should  be  allowed  to  re- 
cover upon  the  note   as   it   stood   when  the   defendant   signed   it; 
I  and  the  presiding  judge  so  ruled.     But  we  are  of  opinion  that  this 
pi      /  ruling  can  not  be  supported,  and  that  the  verdict  must  be  set  aside, 
I  and  a  new  trial  granted.     We  think  no  case  has  gone  so  far  in  this  i 
"  '   commonwealth  as  to  hold  that,  where  a  material  alteration   in   a 
contract  has  been  made  by  the  payee  or  obligee,  with  the  express 
intention  of  changing  the  operation  of  the  contract  itself,  and  of 
making  it  in  terms  a  different  contract,  it  could  afterward  be  en- 
forced, even  in  the  absence  of  any  fraudulent  intent.     But  whether 
this  be  so  or  otherwise,  in  a  case  in  which  the  alteration  is  made 
after  the  delivery  of  the  writing7~the  case  at  bar  must  be  governed 
by  principle  which  depends  upon  wholly  different  considerations. 

This' note  is  a  contract  in  writing,  and  purports  to  be  the  con- 
tract of  both  Reed  and  the  defendant.     If  both  are  bound  by  it,  it 
is  the  same  contract  by  each  of  them.    The  writing  is  single,  and  can 
.     ,  I  not  be  treated  as  if  it  contained  two  separate  agreements,  one  bind- 
%if  /  ing_jipmi_the_one  and  the  other  upon  the  other.     The  payee  never 
I  received  it,  or  agreed  to  receive  it,  as  a  note  not  bearing  interest.    He 
took  it  as  a  note  payable  with  interest,  having  the  signature  of  Reed    • 
appended  to  it  as  such,  and  delivered  by  Reed  to  him  as  an  effec- 
tual contract  according  to  its  tenor.    He  knew  that,  as  it  was  signed 
by  the  defendant,  it  was  not  a  note  bearing  interest ;  and  he  assumed 
that  Reed  had  authority  to  make  the  defendant  a  party  to  the  new 
contract,  which  the  insertion  of  the  words  "with  interest"  consti- 
tuted.    But  Reed  had  not  such  authority  ;  and  J.he  contract  which 
the  payee  of  the  note  received  does  not  therefore  bind  the  defend- 


336 


SURETYSHIP    DEFENSES 


vr 


ant.  The  defendant  never  made  the  note  which  the  payee  accepted. 
~TrTere  seems  to  be  no  difference  in  principle  between  this  case 
and  the  one  where  a  note  should  be  signed  by  two  persons  for  the 
sum  of  three  hundred  dollars,  and  one  of  them,  supposing  he  had 
authority  from  the  other,  but  really  without  his  consent,  should 
strike  out  the  words  "three  hundred  dollars,"  and  insert  in  their 
place  "five  hundred  dollars,"  and  then  negotiate  the  note.  The 
other  signer  would  be  wholly  discharged,  not  on  the  ground  of 
fraud  and  forgery,  but  of  want  of  authority  to  bind  him.  The  note 
used  he  did  not  execute;  the  note  which  he  executed  was  never /<J£ 
used,  but  was  destroyed  by  the  alteration,  and  another  substituted/ 
for  it. 

The  plaintiffs'  declaration  shows  that  they  rely  upon  a  different 
contract  from  the  one  which  was  signed  by  the  defendant,  the  only 
contract  to  which  he  ever  assented;  and  if  the  words  "with  in- 
terest" could  be  stricken  out  and  treated  as  nullity,  there  would  be 
a  variance  between  the  declaration  and  the  proof. 

New  trial  granted. 


JOHN  S.  CHADWICK  v.  ENOS  EASTMAN  ET  AL 
53  Maine  12  (1864). 


• 


Walton,  J. :  This  is  an  action  of  assumpsit,  and,  to  support  it, 
the  plaintiff  read  in  evidence  a  note  of  the  following  tenor: 

"Bangor,  April  19,  1861. 
"At  five  days  sight,  value  received  of  Charles  O.  Fanning,  we, 
or  either  of  us,  promise,  jointly  and  severally,  to  pay  him  or  bearer, 
thirteen  hundred  and  sixty-five  dollars  and  thirty-five  cents,  with 
interest  from  date.  For  Enos  and  Wm.  Eastman, 

"Wm.  L.  Eastman." 

The  defendants  contended,  and  introduced  evidence  tending  to 
prove,  that  the  words,  "for  Enos^and^ Wm.  Eastman,"  were  ixv- 
serted  in  the  note  by  the  payee,  after  its  execution,  and  without 
the  knowledge  or  consent  of  defendants,  it  would  be  such  an  al- 
teration as  would  avail  the  defendants  to  avoid  the  note  in  this  suit. 

To  this  instruction  the  plaintiff  excepted,  and  his  counsel  con- 
tends, in  a  very  able  and  instructive  argument,  that  the  exceptions 
ought  to  be  sustained  and  a  new  trial  granted.  He  says  that  the 
defend?nts  were  copartners,  and  that  the  note  in  suit  was  given  for 
a  copartnership  debt ;  that  Wm.  L.  Eastman  had  the  power,  and 
that  the  language  of  the  note,  "we,  or  either  of  us,  promise,"  etc., 
shows  that  he  intended  to  bind  his  copartner  as  well  as  himself ; 
that  the  law  will  give  effect  to  this  intention,  by  holding  Enos  as  a 
joint  promisor  upon  the  note  in  its  original  form,  or  by  giving  the 


MATERIAL    ALTERATION  337 

payee  authority  to  add  sufficient  for  the  purpose ;  that,  if  the  for- 
mer be  the  correct  view,  then  the  alteration  was  immaterial — if 
the  latter,  then  the  payee  had  authority  to  make  it ;  that  the  inten- 
tion to  bind  Enos,  which  he  contends  is  apparent  upon  the  face  of 
the  note,  renders' the  alteration  immaterial  or  impliedly  authorized; 
and  that,  upon  either  view,  the  plaintiff  is  entitled  to  judgment 
against  both  defendants  for  the  amount  of  the  note. 

1.  Was  the  insertion   of  the  words  "for  Enos  and  Wm.   East-   , 
man,"  .a" material  alteration  of  the  note?   Of  this  we  can  not  enter- 
tain a  doubt.     Without  these  words  the  note  would  not  be  evidence 

"that  Enos  Eastman  was  in  any  way  holden  upon  it.  We  are  not 
now  asserting  that  he  would  not  be  holden  upon  it — we  are  only 
asserting  that  the  note  itself  would  be  no  evidence  of  it — that  his 
liability,  if  established  at  all,  would  have  to  be  made  out  by  evi- 
dence dehors  the  note.  But,  with  these  words  in,  the  note  itself 
establishes  his  liability,  prima  facie.  It  is  very  clear,  therefore,^ 
that  [the  insertion  of  the  words  "for  Enos  and  Wm.  Eastman," 
changes  the  effect  of  the  note  as  an  instrument  of  evidence,  and 
makes  it  prove  more  than  it  otherwise  would.  4 "Any  alteration 
which  changes  the  evidence  or  mode  of  proof  is  material."  2  Par- 
sons on  Bills  and  Notes,  564. 

2.  Was  the  form  of  the  note  such  as  to  authorize  the  payee  to 
insert  the  words  "for  Enos  and  Wm.  Eastman?"     Was  it  apparent, 
upon  the  face  of  the  note  that  Wm.  L.  Eastman  intended  by  his 
own  signature  to  bind  his  copartner?    We  think  not.     On  the  con- 
trary, the  form  of  the  note  excludes  such  an  inference.     It  is  in 
form  ajoint_and^  several  note,  and  a  partner  can  not  bind  his  co-  j  - 
partnex-se^^rally.     The  true  inference  to  be  drawn  from  the  form 
oTlne  note  is,  that  it  was  made  to  be  signed  by  two  persons,  not 
that  two  persons  were  to  be  bound  by  the  signature  of  one ;  and 
that,  for  some  cause,  the  signature  of  the  second  was  not  obtained. 
The  note  itself  does  not  disclose  a  partnership,  the  language  being 
such,  in  one  respect,  as  a  partner  could  not  properly  use.    We  refer 
to  the  words  implying  a  several  liability.  Nor  does  it  disclose  the  fact 
that_it~was  given  for  a  partnership  debt.   Surely  consent  to  make  the  . 
alteration  is  not  implied  in  the  form  or  language  of  the  note. 

But  we  do  not  see  that  any  point  of  law,  arising  out  of  this  ques- 
tion of  implied  consent,  is  open  to  the  plaintiff.  Consent,  whether  1 
express  or  implied,  was  a  fact  to  be  found  by  the  jury ;  and  the 
presiding  judge  does  not  appear  to  have  made  any  rulings  unfa-  " 
vorable  to  the  plaintiff  in  relation  to  it.  He  told  the  jury  what  the 
consequences  would  be  if  the  alteration  was  made  without  consent; 
but,  so  far  as  appears,  he  left  the  question  whether  there  was  or 
was  not  consent,  to  the  jury,  unembarrassed  by  any  rulings  unfa- 
vorable to  the  plaintiff.  It  is  unnecessary,  therefore,  to  discuss 
this  branch  of  the  case  further.  2  Parsons  oh  Bills  and  Notes,  565. 
22— De  Witt. 


338 


SURETYSHIP   DEFENSES 


3.  If,  then,  the  alteration  was  a  material  one,  and  was  made  by 
the  payee  after  the  execution  of  the  note,  and  without  the  knowl- 
edge or  consent  of  the  defendants,  was  it  such  an  alteration  as 
would  avail  the  defendants  to  avoid  the  note  in  this  suit? 

Tampering  with  documentary  evidence  is  not  to  be  encouraged. 
It  is  the  right  of  every  one  to  have  his  contracts  remain  as  he  has 
made  them.  If  error  has  accidentally  crept  into  a  written  contract, 
a  court  of  equity,  in  proper  cases,  will  correct  it.  But  the  law  does 
'not  allow  one  of  the  parties,  without  the  consent  of  the  other,  to 
do  it. 

It  was  held  in  Pigot's  case  (11  Coke  27)  that,  when  a  deed  is 
altered  in  a  point  material,  without  the  privity  of  the  obligor,  it 
thereby  becomes  void.  The  reason  of  the  rule  is,  that  a  man  shall 
not  take  his  chance  of  committing  a  fraud,  and  lose  nothing  by  it  in 
case  he  is  detected.  The  rule  was  extended,  in  Master  v.  Miller 
(4  T.  R.  320),  to  all  written  instruments;  and  affirmed  in  the  same 
case  on  writ  of  error  (5  T.  R.  367),  and  ever  since  followed  by 
the  English  courts ;  and  the  rule  is  believed  to  be  universally  adopted 
in  this  country,  wherever  the  common  law  prevails.  To  have  this 
effect,  the  alteration  must  be  material.  The  insertion  of  a  word 
which  the  law  itself  would  supply,  though  done  without  the  consent 
of  the  other  party,  is  immaterial,  and  will  not  invalidate  the  in- 
strument, because  its  legal  effect  is  not  thereby  changed. 

It  is  said,  in  Chitty  on  Bills,  85,  that  an  alteration  to  correct  a 
mistake  does  not  vitiate  a  bill  of  exchange;  and  this  remark  seems 
to  have  given  rise  to  an  erroneous  belief  in  the  minds  of  some.  In 
all  the  reported  cases  on  this  point,  it  appears  that  the  alterations 
were  made  by  consent,  and  the  remark,  that  such  an  alteration  does 
not  invalidate  the  instrument,  had  reference  to  the  stamp  law,  and 
meant  no  more  than  that  an  alteration,  by  consent,  to  correct  an 
error,  would  not  require  a  new  stamp.  It  is  erroneous  to  suppose 
that  one  of  the  parties  may  lawfully  alter  an  instrument,  even  to 
correct  an  error,  without  the  consent  of  the  other.  The  other  may 
deny  that  there  is  any  error,  and  the  holder  of  the  instrument  can 
not  lawfully  take  upon  himself  the  decision  of  that  question.  (2 
N.  H.  545.) 

The  correct  doctrine  is,  that  [any  alteratioji  which  changes  the 
legal  effect  of  the  instrument,  either  fiiTts  terms,  or  the  parties,  or 
as  an  instrument  of  evidence,  is  material;  and,  if  made  by  the 
holder,  without  the  consent  of  the  other  party,  will  invalidate  it. 
This  is  a  wise  rule  of  law,  and  sound  policy  requires  its  stringent  i 
enforcement. 

The  alteration  of  the  note  in  suit  was  material,  and,  so  far  as  ap- 
pears,' "  whollv  unauthorized;  and  we  think  the  presiding  judge  d\'<T~~. 
right  in  ruling  that  it  was  such  an  alteration  as  would  avoid  the 
note. 

Exceptions  overruled. 


MATERIAL    ALTERATION  339 

Judgment  on  the  verdict. 

Appleton,  C.  J.,  Cutting,  Kent,  Barrows  and  Danforth,  J  J.,  con- 
curred. 

See  also  Wood  v.  Steele,  6  Wall.  (U.  S.)  80,  18  L.  ed.  725;  Eckert  v.  Louis, 
84  Ind.  99;  Fulmer  v.  Seitz,  68  Pa.  St.  237,  8  Am.  Rep.  172. 


NEWMAN  ET  AL.  v.  KING 
54  Ohio  St.  273,  43  N.  E.  683,  35  L.  R.  A.  471,  56  Am.  St.  705  (1896). 

Bradbury,  J. :  The  promissory  note,  the  subject  of  this  action, 
was  executed  by  Ida~Hewman,  Martha  Martin  and  George  Martin, 
and  delivered  to  the  payee,  J.  C.  Frampton.  By  successive  in- 
dorsements made  in  due  course  of  business  and  before  due,  the  note 
was  transferred  to  defendant  in  error,  Charles  J.  King,  for  value. 
'The  makers  of  the  note  answered,  contesting,  among  other  de- 
fenses, its  validity,  on  the  ground  that  the  payee,  after  its  delivery 
to  him,  ajid  without  their  consent  and  knowledge,  altered  its  date 
from  June  22,  1890,  to  June  23,  1890.  This  was  denied  by  the 
holder  of  the  note,  defendant  in  error,  in  his  reply.  Upon  the  issue 
thus  arising,  and  after  the  testimony  bearing  thereon  had  been 
given  to  the  jury,  the  holder  of  the  note,  defendant  in  error,  re- 
quested the  court  to  charge  the  jury  as  follows : 

"If  the  jury  find  from  the  evidence  that  J.  C.  Frampton  did  alter 
the  date  of  this  note  from  June  22,  1890,  to  June  23,  1890,  and  fur- 
ther find  that  such  alteration  was  only  for  the  purpose  of  making 
the  note  bear  its  true  date,  and  that  such  alteration  did  in  fact  ! 
make  such  note  bear  its  true  date,  then  such  alteration  is  an  imma- 
terial alteration,  and  is  not  a  good  defense  in  this  action,"  but  the  . 
court  refused  to  so  charge  as  requested,  to  which  refusal  the  plain- 
tiff at  the  time  excepted. 

Thereupon  the  court  charged  the  jury  upon  this  point  as  fol- 
lows :  "Now  I  say  to  you  as  a  matter  of  law  in  this  case,  gentle- 
men, that  if  you  shall  find  from  the  evidence  in  this  case  that  since 
I  the  defendants  signed  the  note  sued  upon  in  this  action,  the  same 
has  been  altered  by  the  payee  thereof,  J.  C.  Frampton,  without  the 
knowledge  or  consent  of  either  of  these  defendants,  by  changing 
the  date  thereof  from  June  22  to  June  23,  that  such  alteration  and 
change  would,  in  law,  amount  to  and  would  be  a  material  alteration, 
and  such  alteration  would  render  the  note  void  as  to  these  defend- 
ants, and  would  operate  to  discharge  them  from  all  liability  thereon, 
although  you  may  believe  from  the  evidence  that  the  plaintiff  took 
the  note  in  the  regular  course  of  business  before  due,  for  a  valuable 
consideration  and  without  notice  of  such  alteration."  To  which 
charge  as  given  the  plaintiff  at  the  time  excepted. 


340 


SURETYSHIP    DEFENSES 


The  verdict  and  judgment  were  against  the  validity  of  the  note. 
This  judgment  the  circuit  court  reversed  on  the  ground,  among 
others,  that  the  court  of  common  pleas  erred  in  refusing  to  charge 
the  proposition  requested,  and  in  charging  as  it  did  upon  the  sub- 
ject. This  is  the  only  question  arising  on  the  record  of  sufficient 
importance  to  require  attention.  That  the  date  borne  by  a  prom- 
issory note  is  a  material  matter  is  not  seriously  contested  That 
it  is  material,  we  think,  clear  upon  both  reason  and  authority,  the 
time  of  payment  and  the  bar  of  the  statute  of  limitations  both  de- 
pend upon  its  date:  If  the  date  of  a  promissory  note  may  be 
changed  one  day,  why  not  two  days?  If  two  days  are  not  ma- 
terial, what  number  shall  be  held  material?  No  satisfactory  an- 
swer can  be  made.  \By  changing  its  date  the  identity  of  the  instru- 
j  ment  is  destroyed,  and  it  is  no  longer  the  contract  made  by  the  par- 
ities. ^  Bowers  v.  Jewell,  2  N.  H.  543;  Wood  v.  Steele,  6  Wall.  80; 
Inglish  v.  Breneman,  5  Ark.  377 ;  Miller  v.  Gilleland,  19  Pa.  St. 
119;  Brown  v.  Straw,  6  Neb.  536. 

The  authorities  bearing  upon  this  proposition  are  quite  numerous, 
but  to  cite  them  further  would  be  a  work  of  supererogation. 

If  by  reason  of  the  alteration  it  has  ceased  to  be  the  contract  of 
the  parties,  the  defense  thus  arising  is  available  against  an  inno- 
cent purchaser.  Charlton  v.  Reed,  61  Iowa  166;  Cronkhite  v.  Neb- 
eker,  81  Ind.  319;  Haskett  v.  Champion,  30  Mo.  136;  Wood  v. 
Steele,  6  Wall.  80.  Other  authorities  could  be  cited,  but  we  do  not 
think  it  at  all  necessary  to  support  by  an  extended  list  of  prece- 
dents a  proposition  so  obviously  consistent  with  sound  reason. 

The  defendant  in  error  contends  that,  although  the  date  which  a 
promissory  note  bears  may  be  a  material  matter,  yet  that  as  the  note 
in  controversy,  according  to  the  intention  of  all  the  parties  to  it, 
should  have  been  dated  June  23d,  instead  of  June  22d,  1890,  an 
alteration  made  by  the  payee  honestly  and  in  good  faith  after  its 
delivery  to  him,  that  merely  caused  the  instrument  to  express  tne 
date  intended,  even  if  done  without  the  knowledge  or  consent  of 
the  makers,  would  not  render  the  note  void.  This  contention  finds 
support  from  reputable  authorities.  In  Decker  v.  Franz,  7  Bush 
(Ky.),  273,  a  promissory  note  had  been  dated  in  1868,  and  the 
payee  altered  the  date  to  1890  by  changing  the  figure  "8"  to  "9" 
without  the  knowledge  or  consent  of  the  maker.  The  court  main- 
tained the  validity  of  the  note  on  the  ground  that  in  its  altered  con- 
.  dition  it  conformed  to  the  intention  of  the  parties.  _  The  same  doc- 
trine is  maintained  in  Mississippi.  McRaven  v.  Crisler,  Admx.,  53 
Miss.  542;  in  Maine,  Hervey  v.  Harvey,  15  Maine  357.  In  the  latter 
case,  however,  great  weight  was  given  to  the  fact  that  the  maker 
knew  of  the  mistake,  while  the  other  parties  did  not,  and  the  court 
seemed  to  be  of  opinion  that  his  attempt  to  avail  himself  of  the  al- 
teration as  a  defense  constituted  a  fraud  upon  the  plaintiff.  lb. 
359;  Clute  v.  Small,  17  Wend.  238;  Bowers  v.  Jewell,  2  N.  H.  543. 


MATERIAL    ALTERATION 


341 


Other  cases,  cited  as  sustaining  this  doctrine,  do  not  support  it 
to  the  extent  claimed  for  them. 

Thus,  in  Johnson  v.  Johnson's  estate,  66  Mich.  525,  which  was 
an  action  to  charge  the  estate  of  the  principal  maker  of  a  prom- 
issory note  for  the  debt  evidenced  thereby,  a  note  had  been  given 
on  October  23,  1876,  for  the  balance  due  on  account  stated  between 
the  parties,  but  by  mistake  was  dated  October  23,  1875.  The  trial 
court  found  that  the  payee  honestly,  and  with  no  fraudulent  intent, 
changed  the  "5"  to  "6."  This  was  done  without  the  knowledge  or 
consent  of  the  makers.  Afterward  the  principal  made  two  pay- 
ments on  the  note,  upon  which  circumstances  some  stress  was  placed 
by  the  court,  although  it  does  not  appear  that  he  knew  of  the  al- 
teration, when  the  payments  were  made.  The  wife  of  Johnson  had 
signed  the  note  as  surety.  The  court  seemed  to  be  of  opinion  that 
the  alteration  changed  the  contract  and  discharged  the  wife,  for  the 
court  said  "the  fact  that  Mrs.  Johnson  was  not  bound  by  the  note 
would  not  discharge  her  husband  for  whom  she  signed  as  surety." 
The  claim  was  allowed  against  the  estate  of  the  principal.  The 
reasoning  of  the  court  is  not  very  clearly  set  forth,  but  sufficient 
appears  to  show  that  the  decision  was  quite  as  much  due  to  the 
theory  that  the  original  consideration,  the  account  stated,  would 
support  the  claim  as  to  any  other  principle,  the  court  saying :  "And 
furthermore  the  account  stated,  which  was  the  foundation  of  the 
note  would  form  a  new  basis  of  indebtedness." 

In  some  cases  the  alteration  was  sustained  on  the  ground  that  it 
was  made  by  an  agent  of  the  maker,  or  drawer,  before  delivery.  • 
Brett  v.  Pecard,  Ryan  &  Moody,  N.  P.  37;  Van  Brunt  &  Slaight 
v.  Eoff,  35  Barb.  (N.  Y.)  501.  In  other  cases  the  note  or  bill  of 
exchange  was  held  valid,  notwithstanding  the  insertion  of  a  word 
without  the  knowledge  of  the  maker  or  drawer,  upon  the  ground 
that  the  word  inserted  was  implied  by  the  contents  of  the  instru- 
ment. 

The  question  raised  by  the  instructions  given  and  refused,  relate 
solely  to  the  effect  to  be  given  to  a  promissory  note,  after  its  date 
has  been  altered  by  the  payee  without  the  knowledge  or  consent  of 
the  maker.      fla&Mp  . 

The  question  Js  one  of  public  policy.     Doubtless,  aU_minds  will 
concur  in  the  proposition  that  after  a  written  instrument  has  been  r  y^' 
altered  in  a  material  matter,  it  no  longer  retains  its  identity ;  it  is  V 
in  fact  a  new  contract,  and  imposes  obligations  and  secures  rightsy 
different  from  those  it  imposed  or  secured  at  its  origin.    Nor  will 
any  reasonable  mind  contend  that  one  of  the  parties  to  a  written 
instrument  may  alter  it  without  the  consent  of  the  others  so  that  it 
will  express  anything  not  intended  by  the  parties.     The  contention 
is,  however,  that  it  may  be  altered  by  one  party  alone  without  the 
knowledge  or  consent  of  the  others,  if  in  its  altered  condition,  it 
conforms  to  the  intention   of  the  parties,  and  the  alteration   was 


342 


% 


:;  anc 


SURETYSHIP    DEFENSES 


honestly  made;  and  that,  that  being  true,  it  may  be  enforced  in  its 
altered  condition.  The  reasoning  is  that,  as,  in  its  changed  condi- 
tion, it  jexpresses  the  intention  of  the  parties,^no  injury  has~  been 
done  by  the  alteration.  That,  no  doubt,  is  true  in  every  case  of  an 
alteration  in  so  far  as  it  concerns  the  parties  affected  by  it.  If,  in 
its  altered  state,  it  requires  the  obligor  to  do  the  particular  thing 
he  agreed  to  do,  no  personal  wrong  has  been  inflicted  on  him.  In 
this  view  of  the  matter  the  number  and  extent  of  the  alterations  are 
immaterial,  for,  however  great  and  numerous  they  may  happen  to 
be,  the  instrument  in  its  changed  condition  requires  the  obligor  to 
do  just  what  he  promised,  and  therefore,  in  good  conscience,  ought 
to  do.  The  question,  however,  does  not  rest  solely  upon  this  aspect 
of  the  matter.  Regard  should  be  had  to  the  policy  of  maintaining 
the  integrity  of  written  instruments ;  particularly  those  whose  char- 
acter, or  nature,  is  such  that  their  possession  and  custody  belong 
to  one  party  only. 

Promissory  notes  are  of  this  class.  This  policy,  we  think, 
denies  to  the  custodian  of  a  written  instrument,  to  whose  possession 
its  nature  necessarily  confides  it,  the  power  to  alter  its  terms  in  any 
material  matter  whatever,  in  order  that  it  may  conform  to  his  no- 
tion of  what  the  parties  intended  when  it  was  executed. 

Deliberate  tampering  with  written  instruments  by  their  obligees 
upon  any  pretense  whatever  should  not  be  encouraged.  If  the  right 
to  do  so  in  respect  to  any  material  matter  should  be  established, 
the  principles  by  which  satisfactory  limits  can  be  fixed  to  such  right 
are  not  apparent.  And  if  established,  the  nature  of  the  right  is 
such  that  probably  it  would  be  rarely  exercised  by  the  prudent  and 
conscientious  custodian  of  a  written  instrument  in  any  case ;  but 
insteadit  would  be  used  chiefly  if  not  altogether  by  those  at  whose 
hands  its  exercise  would  be  fraught  with  peril  to  the  integrity  of 
written  instruments,  namely  those  who,  if  not  actually  unscrupulous, 
are  at  least  regardless  of  the  rights  of  others. 

Where,  by  mistake,  a  written  instrument  does  not  conform  to  the 
intention  of  the  parties,  and  they  can  not  agree  respecting  the  mis- 
take and  its  correction,  an  adequate  remedy  has  been  provided 
according  to  the  principles  of  equity  jurisprudence,  by  courts  hav- 
ing jurisdiction  to  correct  such  mistakes  where  rules  of  evidence 
appropriate  to  establish  the  fact  of  mistake  are  prescribed  and  en- 
forced. 

In  this  state  an  alteration  appearing  on  the  face  of  a  promissory 
note  is  presumed  to  have  been  made  at  or  before  the  time  of  its 
execution,  and  the  burden  of  proof  is  cast  upon  one  who  seeks  to 
establish  the  contrary.  Franklin  v.  Baker,  48-XLhio_j5t!^296 ;  and 
this  seems  to  be  the  rule  that  generally  prevails  throughout  the 
United  States.  Bailey  v.  Taylor,  11  Conn.  531;  Speake  v.  U.  S., 
9  Cranch  37 ;  Wickes  v.  Caulk,  5th  Harr.  &  John  36. 

This  presumption,  that  an  alteration  appearing  on  the  face  of 


MATERIAL    ALTERATION  343 

a  written  instrument  was  made  at  or  before  its  execution,  is  an  ad- 
ditional and  obvious  reason  for  denying  to  the  custodian  of  any  in- 
strument to  which  the  presumption  applies,  any  authority  to  change 
its  terms  in  a  material  respect. 

Otherwise  a  party  by  his  own  act  may  change  the  burden  of  proof 
and  thus  deprive  the  other  party  of  a  valuable  right.  Before  the 
alteration  was  in  fact  made,  should  he  have  sought  a  correction 
through  the  medium  of  a  court  of  justice,  the  burden  would  have 
rested  upon  him  to  establish  the  mistake  by  clear  and  convincing 
evidence.  Having  made  the  alteration,  when,  perhaps  years  after- 
ward, he  seeks  the  enforcement  of  the  instrument  in  its  altered 
state,  this  ex  parte  act,  by  its  inherent  force,  raises  a  presumption 
that  the  alteration  had  been  made  at  or  before  its  execution,  and 
thus  the  burden  of  establishing  the  fact  that  the  alteration  was  made 
afterward,  is  thrown  upon  the  party  who  alleges  it. 

We  are  not  at  this  time  concerned  as  to  the  effect  that  a  ma- 
terial, though  innocently  made,  alteration  of  a  written  instrument 
may  have  upon  the  rights  of  the  beneficiary  in  it,  to  recover  on 
account  of  the  original  consideration  moving  between  the  parties, 
nor  with  his  right  to  restore  the  instrument  to  its  original  condi- 
tion and  to  enforce  it  when  thus  restored.  Because  the  only  ques- 
tion raised  by  the  record  relates  to  the  right  to  recover  upon  the 
instrument  itself  in  its  altered  condition  ;  for  the  instructions  given 
and  refused  by  the  trial  court,  to  which  exceptions  were  taken,  bore 
upon  this  last  question  only. 

The  action  was  brought  by  an  indorsee  who  sought  a  recovery 
upon  the  instrument  itself.  The  makers  denied  that  the  instrument 
was  the  one  they  had  executed,  because  its  date  had  been  altered 
without  their  knowledge  or  consent.  This  was  the  issue  to  which 
the  instructions  in  controversy  relate,  and  we  think  the  court  of 
common  pleas  laid  down  the  correct  rule  upon  the  subject.  The 
view  we  have  adopted  finds  support  among  the  text  writers,  and 
in  the  decisions  of  courts  of  high  authority.  Inglish  v.  Brene- 
man,  5  Ark.  377;  Charlton  v.  Reed,  61  Iowa  166;  Wood  v.  Steele, 
6  Wall.  80;  Haskell  v.  Champion,  30  Mo.  136-138;  1  Thompson 
on  Trials,  §  1395  ;  Evans  v.  Foreman,  60  Mo.  449;  Moore  v.  Lessee 
of  Bickham  &  West,  4  Binn.  1 ;  Miller  v.  Gilleland,  19  Pa.  St.  119. 

However,  the  judgment  of  reversal  was  not  placed  solely  upon 
the  ground  of  error  in  the  charge  given  and  refused,  but  rested, 
also,  upon  the  action  of  the  court  of  common  pleas  in  excluding 
evidence  offered  by  the  defendant  in  error,  plaintiff  below,  which 
evidence  we  think  was  material  and  competent. 

Therefore,  the  judgment  of  reversal  was  correct  and  will  be 
affirmed. 

Judgment  affirmed. 


344 


SURETYSHIP    DEFENSES 


ALDOUS 


CORNWELL 


L.  R.  3  Q.  B.  573  (1868). 

Declaration,  that  the  defendant,  on  the  8th  of  November,  1865,  by 
his  promissory  note,  promised  to  pay  the  plaintiffs  £125  on  demand. 

Plea,  that  the  defendant  did  not  make  the  note,  as  alleged. 

At  the  trial,  before  Shee,  J.,  at  the  sitting  in  London  after  Trin- 
ity Term,  1865,  the  following  promissory  note,  signed  by  the  de- 
fendant, was  put  in : 

"On  demand.  November  8th,  1865. 

"I  promise  to  pay  Mr.  Ed.  Aldous  the  sum  of  £125." 

But  it  was  proved  that  the  promissory  note,  when  delivered  to  the 
plaintiff,  did  not  contain  the  words  "on  demand."  and  that  these 
words  had  been  inserted  while  the  note  was  in  the  possession  of  the 
plaintiff,  the  payee,  without  the  knowledge  of  the  defendant,  but 
there  was  no  positive  evidence  to  show  by  whom  the  alteration  was 
made. 

The  learned  judge  directed  a  verdict  for  the  plaintiff,  reserving 
leave  to  move  to  enter  a  verdict  for  the  defendant,  if  the  note  was 
rendered  void  by  the  alteration. 

A  rule  having  been  obtained  accordingly,  on  the  ground  that  a 
material  alteration  had  been  made  in  the  note  after  it  was  given. 

The  judgment  of  the  court  (Cockburn,  C.  J.,  Blackburn  and 
Lush,  JJ.)  was  delivered  by  Lush,  J. 

This  was  an  action  by  the  payee  against  the  maker  of  a  promis- 
sory note,  expressed  to  be  payable  on  demand.  The  plea  denied  the 
making  of  the  note. 

At  the  trial  before  the  late  Mr.  Justice  Shee  it  was  proved  that 
the  words  "on  demand"  were  added  after  the  note  had  been  deliv- 
ered to  the  plaintiff.  It  did  not  appear  who  made  the  alteration,  but 
it  was  assumed  to  have  been  made  by  the  plaintiff,  and  no  question 
was  raised  as  to  this  fact.  The  learned  judge  directed  a  verdict  for 
the  plaintiff,  reserving  the  point  whether  by  such  an  alteration  the 
note  was  rendered  void.  No  objection  having  been  made  to  the 
pleadings,  we  must  consider  the  case  as  if  the  question  had  been 
properly  raised  on  the  record. 

It  was  admitted,  and  properly  so,  on  the  argument,  that  the  addi- 
tion of  these  words  did  not  alter  the  legal  effect  of  the  instrument, 
but  only  tended,  upon  the  authority  of  Pigot's  Case,  11  Rep.  26  b, 
and  Master  v.  Miller,  4  T.  R.  320,  1  Sm.  L.  C.  796,  that  the  altera- 
tion, having  been  made  by  the  payee  and  holder,  though  in  a  matter 
not  material,  avoided  the  instrument. 

In  Pigot's  Case,  11  Rep.  at  fol.  27  a,  it  is  said,  "If  the  obligee 
himself  alters  the  deed  by  any  of  the  said  ways  (viz.,  by  interlinea- 


MATERIAL    ALTERATION  345 

tion,  addition,  erasing,  or  by  drawing  a  pen  through  the  line,  etc.), 
although  it  is  in  words  not  material,  yet  the  deed  is  void,  but  if  a 
stranger,  without  his  privity,  alters  the  deed  by  any  of  the  said  ways, 
in  any  point  not  material,  it  shall  not  avoid  the  deed."  For  this 
proposition,  Dyer,  9  Eliz.,  fol.  261  b,  is  cited.  Shep.  Touch.,  Vol.  1, 
p.  68,  is  to  the  same  effect.  It  was  found  as  a  fact  in  Pigot's  Case 
that  the  alteration,  which  was  not  a  material  one,  was  made  by  a 
stranger,  and  judgment  was  given  for  the  plaintiff,  so  that  the  case 
itself  is  not  a  decision  upon  the  point  in  question.  Master  v.  Miller 
extended  the  doctrine,  as  regards  material  alterations,  to  bills  of 
exchange ;  and  subsequent  cases  have  applied  it  indiscriminately  to 
all  written  instruments,  whether  under  seal  or  not ;  see  Davidson  v. 
Cooper,  11  M.  &  W.  778;  in  error,  31  M.  &  W.  343.  No  authority 
was  cited,  nor  are  we  able  to  find  one,  in  which  the  doctrine  has 
been  acted  upon,  and  an  instrument  held  to  be  avoided  by  an  im- 
material alteration.  There  are  cases  to  the  contrary,  though  we  can 
not  regard  them  as  entirely  satisfactory.  Thus  in  Lord  Darcy  and 
Sharpe's  Case,  1  Leon.  282,  an  alteration  in  a  bond  not  material 
made  by  the  executor  of  the  obligee  was  held  not  to  vitiate  the  bond. 
But  the  court  seemed  to  lay  stress  on  the  fact  that  the  alteration  was 
in  favor  of  the  obligor. 

In  Sanderson  v.  Symonds,  1  B.  &  B.  426  (E.  C.  L.  R.,  Vol.  5),  the 
holder  of  a  policy  of  insurance  on  a  ship  on  a  voyage  to  the  coast  of 
Africa,  during  her  stay  there,  and  back  to  Liverpool,  with  liberty 
to  "touch  and  stay  at  any  port  or  places  to  sell,  barter,  and  ex- 
change, and  load,  and  unload,  and  reload,  at  any  of  the  ports  and 
places  she  may  call  at,"  had,  fearing  that  these  words  might  not  be 
sufficiently  extensive  for  his  purpose,  added  after  the  words  "during 
her  stay,"  the  words  "to  trade."  Several  of  the  underwriters  had 
initialed  the  alteration,  but  the  defendant  refused  to  do  so,  on  the 
ground  that  he  never  underwrote  trading  policies  to  Africa,  and  he 
offered  before  loss  to  cancel  his  subscription  and  return  the  pre- 
mium, rather  than  assent  to  such  an  alteration.  The  plaintiff  re- 
fused to  accept  this  offer,  and  held  to  the  policy.  The  ship  was  after- 
ward lost,  and  the  plaintiff  sued  the  defendant  for  his  subscription  ; 
the  defendant  resisted  the  action  on  the  ground  that  the  alteration 
avoided  the  policy  so  far  as  he  was  concerned.  It  is  to  be  observed 
here  that  both  parties  thought  the  alteration  material  at  the  time  it 
was  made.  The  court,  however,  held  that  the  words  so  added  ex- 
pressed no  more  than  was  already  contained  in  the  policy  as  signed 
by  the  defendant,  and  therefore  that  the  defendant  was  not  dis- 
charged. This  case  might  have  been  cited  as  conclusive  upon  the 
question  before  us,  but  for  the  reasons  assigned  by  the  different 
members  of  the  court  for  their  judgment.  Dallas,  C.  J.,  1  B.  &  B. 
429,  said  that  the  rule  was  intended  not  so  much  to  guard  against 
fraud  as  to  insure  the  identity  of  the  instrument,  and  prevent  the 
substitution  of  another  without  the  privity  of  the  party  concerned. 


346  SURETYSHIP    DEFENSES 

"But  the  present  case,"  he  said,  "stands  on  its  own  circumstances. 
The  instrument  is  a  policy  of  insurance  signed  by  a  number  of  in- 
dividuals wholly  unconnected  in  interest,  and  between  whom  no 
privity  can  exist.  Indeed,  it  has  never  been  contended  that  this  was 
an  alteration  without  the  privity  of  the  party ;  and  the  old  cases  turn 
entirely  on  alteration  made  without  the  privity  of  the  party.  Here 
the  instrument  was  shown  to  all  the  parties  concerned.  Those  who 
put  their  initials  to  the  alteration  thereby  signified  their  consent  to 
it ;  those  who  refused  to  do  so  expressed  their  denial  by  the  absence 
of  their  initials.  But  the  latter  were  bound  by  the  policy  as  it  stood 
at  the  first,  the  former  by  the  policy  in  its  altered  state."  Park,  J., 
1  B.  &  B.  431,  said:  "In  all  the  cases  on  policies  the  court  refers  to 
the  materiality  of  the  alterations.  The  alteration  here  is  immaterial, 
the  risk  stands  as  it  stood  before,  and  the  writing  immaterial  words 
does  not  vacate  the  policy."  And  Burrough  and  Richardson,  ]]., 
base  their  judgments  on  the  fact  that  the  risk  was  not  varied  by  the 
alteration. 

Had  the  alteration  in  that  case  been  a  material  one,  the  fact  that 
some  of  the  underwriters  had  assented  to  it,  and  that  it  had  been 
shown  to  those  who  expressed  their  assent,  would  not  have  pre- 
vented the  operation  of  the  rule  as  against  the  latter.  This  had  been 
decided  in  two  prior  cases  in  the  same  court,  Langhorn  v.  Cologan, 
4  Taunt.  330,  and  Fairlie  v.  Christie,  7  Taunt.  416  (E.  C.  L.  R., 
Vol.  2),  in  each  of  which  the  dissentient  underwriters  had  been  held 
to  be  discharged  by  a  material  alteration  in  the  policy,  though  they 
had  been  asked  to  join  others  who  had  assented,  and  had  refused  to 
do  so.  The  judgment  of  Dallas,  C.  ].,  can  not  therefore  stand  upon 
that  ground,  and  it  is  obvious  the  real  ground  of  the  decision  in 
Sanderson  v.  Symonds,  1  B.  &  B.  426  (E.  C.  L.  R.,  Vol.  5),  was  that 
the  defendant  was  not,  and  could  not,  be  prejudiced  by  the  altera- 
tion. Why  the  court  should  have  limited  the  doctrine  they  there 
laid  down  to  policies  of  insurance,  it  is  not  easy  to  understand.  We 
can  not  discover  any  reason  for  making  a  distinction  between  that 
and  any  other  species  of  contract. 

Another  case  is  that  of.  Catton  v.  Simpson,  8  A.  &  E.  136  (E.  C. 
L.  R.,  Vol.  35)  ;  there  the  plaintiff  had  joined  the  defendant  as  his 
surety  in  a  joint  and  several  promissory  note.  The  payee,  having 
pressed  the  defendant  for  payment,  had  consented  to  give  time  on 
his  procuring  a  third  person  to  add  his  name  to  the  note.  The  plain- 
tiff, who  had  afterward  paid  a  moiety  of  the  amount,  sued  the  de- 
fendant for  repayment,  and  it  was  objected  that,  as  the  name  of  the 
third  party  had  been  added  without  the  plaintiff's  consent,  he  had 
been  discharged,  and  had  paid  the  money  in  his  own  wrong.  Pat- 
teson,  J.,  who  tried  the  cause,  directed  a  verdict  for  the  plaintiff ; 
and  the  court  refused  a  rule  for  a  new  trial,  holding  that  "it  was  not 
an  alteration  of  the  note,  but  an  addition  which  had  no  effect."  It  is 
true  that  in  the  subsequent  case  of  Gardner  v.  Walsh,  5  E.  &  B.  83 


MATERIAL    ALTERATION  347 

(E.  C.  L.  R.,  Vol.  85),  24  L.  J.  Q.  B.  285,  this  court,  expressly  over- 
ruled Catton  v.  Simpson,  8  A.  &  E.  136,  not,  however,  on  the  ground 
that  an  immaterial  alteration  vacated  the  instrument,  but  on  the 
ground  that  the  alteration  was  a  material  one. 

This  being  the  state  of  the  authorities,  we  think  we  are  not  bound 
by  the  doctrine  in  Pigot's  Case,  11  Rep.  27  a,  or  the  authority  cited 
for  it ;  Dyer,  261  b,  and  not  being  bound,  we  are  certainly  not  dis- 
posed to  pay  it  down  as  a  rule  of  law  that  the  addition  of  words 
which  can  not  possibly  prejudice  any  one  destroys  the  validity  of 
the  note.  It  seems  to  us  repugnant  to  justice  hnd  common  sense  to.' 
hold  that  the  maker  of  a  promissory  note  is  discharged  from  his  Sf  ' 
obligation  to  pay  it  because  the  holder  has  put  in  writing  on  the 
note  what  the  law  would  have  supplied  if  the  words  had  not  been 
written.  'We  therefore  discharge  the  rule. 

Rule  discharged.  " ^ 


LO-tAAo 
M.  F.  SAWYERS,  ADMINISTRATRIX,  v.  A.  L.  CAMPBELL 
ET  AL.,  APPELLANTS 

107  Iowa  397,  78  N.  IV.  56  (1899). 

Robinson,  C.  J. :  The  note  in  suit  is  dated  January  1,  1896,  and  is 
for  the  sum  of  one  thousand  dollars,  payable  to  the  plaintiff  or  order 
six  months  after  its  date,  with  interest.    It  was  signed  by  the  de- 
fendants O.  J.  Houston  and  D.  B.  Lyons,  and  by  the  defendants  and 
appellants  A.  L.  Campbell,  F.  A.  Percival  and  Thomas  Hatton.    As 
•  originally  drawn  and  signed,  it  was  in  form  an  ordinary  negotiable 
,  promissory  note,  but  before  it  was  delivered  there  was  written  across 
its  face  the  following:    "Upon  the  written  request  ol  all  (he  makers 
of  this  note,  made  on  or  before  June  15,  1896,  the  payee  agrees  that 
!  the  time  of  payment  shall  be  extended  six  months  from  the  maturity 
I  thereof  or  note  renewed  for  that  time."    The  petition  alleges  that  a 
I  request  for  the  renewal  of  the  note  was  not  made,  and  demands 
judgment  for  the  amount  of  the  note  against  all  its  signers.    The 
appellants  filed  an  answer,  in  which  they  alleged  that  Houston  and 
Lyons  "alone  were  the  makers  of  and  principals  upon"  the  note, 
and  that  the  appellants  were  sureties  only,  which  fact  was  at  all 
times  known  to  the  plaintiff,  and  that  the  note  was  given  under  cir- 
cumstances and  upon  conditions  as  follows :    In  January,  1896,  the 
plaintiff  owned  a  judgment  rendered  in  her  favor  against  Houston 
and  Lyons,  and  the  appellants  were  sureties  on  a  supersedeas  bond 
filed  in  the  cause  in  which  the  judgment  had  been  rendered.    The 
note   in   suit,  after   it   had  been   signed   by   the  defendants,   was   left 
with  Houston  and  Lyons  for  immediate  delivery  upon  condition  that 
the  judgment,  with  interest  and  costs,  should  be  paid  forthwith,  and 
satisfied  of  record,  and  the  appellants  be  released  from^ll  liability 


; 


u 


348 


SURETYSHIP    DEFENSES 


on  account  of  it.  The  note  was  not  immediately  delivered,  but  was 
held  until  March  26,  1896,  without  the  knowledge  or  consent  of  the 
appellants,  and  was  then  delivered  to  the  plaintiff,  without  having 
the^  judgment,  including  costs,  paid  in  full.  The  appellants  further 
allege  that  the  provision  written  across  the  face  of  the  note  was  so 
written  without  their  knowledge  or  consent,  and  effected  a  material 
alteration  in  the  note,  and  that  by  reason  of  the  matter  pleaded  they 
are  released  from  liability  on  the  note. 


The  chief  contention  of  the  appellants  is  that  the  provision  writ- 
ten across  the  face  of  the  note  was  a  material  alteration  of  the  note, 
that  it  was  made  without  their  knowledge  or  consent,  and  that,  in 
consequence,  they  are  released  from  liability  on  the  note.  It  will  be 
observed  that  the  provision,  by  its  terms,  was  not  to  be  effective 
unless  "upon  the  written  request  of  all  the  makers"  of  the__riot€, 
made  on  or  before  June  15,  1896.  It  is  said  that  the  word  "makers" 
did  not  include  sureties,  but  the  principals  alone,  and  that  the  pro- 
vision therefore  gave  to  the  principals  the  right  to  an  extension  or 
renewal  of  the  note  without  the  consent  of  the  sureties.  The  argu-^ 
ment  in  support  of  the  claim  that  the  word  "makers"  was  not  de- 
signed to  include  sureties  is  ingenious,  but  not  convincing.  Notes 
may  be  made  by  both  principals  and  sureties,  as  was  done  in  this 
case,  and  the  fair  and  reasonable  conclusion  to  be  drawn  from  the 
words  "all  the  makers  of  this  note"  is  that  they  were  intended  to 
refer  to  all  persons  who  had  signed  the  note.  If  the  meaning  could 
be  regarded  as  ambiguous,  undisputed  evidence  shows  that  the 
words  were  intended  to  include  the  sureties.  The  provision  was 
written  on  the  face  of  the  note  without  the  knowledge  or  consent 
of  the  appellants,  and,  if  material,  and  it  has  not  been  ratified,  they 
are  discharged  from  liability  on  the  note.  It  is  said  that  the  effect^ 
of  the  provision  was  to  make  the  note  non-negotiable.  "An  altera- 7  ,- 
tion,  to  be  material,  must  be  in  a  material  part  of  the  instrument  J  ¥u 
and  affect  the  rights  and  liabilities  of  the  parties  thereto.  *  *  T 
And  unless  the  alteration  changes  the  legal  effect  of  the  instru- 
ment— i.  e.,  makes  it  express  a  contract  different  from  that  which 
was  entered  into  by  the  parties  thereto — it  will  not  be  material."  2 
Am.  &  Eng.  Enc.  Law  (2d  ed.)  222.  See  also  Rowley  v.  Jewett,  56 
Iowa  492.  The  intent  with  which  an  immaterial  alteration  is  made 
is  not  material.  Robinson  v.  Insurance  Co.,  25  Iowa  430.  It  is  said 
in  1  Greenleaf  Evidence,  §  565,  that  any  alteration  which  causes  a 
written  contract  to  speak  a  language  different  in  legal  effect  from 
that  it  originally  spoke  is  material.  The  grounds  for  the  rule  are 
stated  to  be :  First,  that  of  public  policy,  to  prevent  fraud ;  and, 
second,  to  insure  the  identity  of  the  instrument.  In  State  v.  Strat- 
ton,  27  Iowa  420,  it  was  held  that  the  removing  from  the  bottom  of 
a  promissory  note  for  twenty-five  dollars  of  a  provision  in  words  as 


1A 


MATERIAL    ALTERATION  349 

follows:  "When  the  said  Brown  (maker)  sells  fifty  dollars'  worth 
of  water  elevator,  and  pays  twenty-five  dollars,  this  note  to  be  con- 
sidered paid," — was  a  material  alteration.  See  also  Benedict  v. 
Cowden,  49  N.  Y.  396.  In  Needles  v.  Shaffer,  60  Iowa  65,  the  sub- 
y^ — stitution  of  the  word  "bearer"  for  "order"  was  held  to  be  a  mate- 
;  rial  alteration.    An  extension  of  time  is  a  material  alteration.    Bon- 

ney  v.  Bonney,  29  Iowa  448 ;  Roberts  v.  Richardson,  39  Iowa  290. 
The  same  is  true  of  a  change  in  the  time  for  paying  the  interest 
(Marsh  v.  Griffin,  42  Iowa  403;  Coburn  v.  Webb,  56  Ind.  96)  and 
of  the  addition  of  others  signers  (Hamilton  v.  Hooper,  46  Iowa 
515;  Berryman  v.  Manker,  56  Iowa  150;  Sullivan  v.  Rudisill,  63 
Iowa  158).  The  same  is  true  of  the  addition  of  the  word  "cashier" 
to  the  name  of  the  payee.  Hodge  v.  Bank,  7  Ind.  App.  94  (34  N. 
E.  Rep.  123).  See  also  Charlton  v.  Reed,  61  Iowa  166.  The  words, 
"all  terms  and  conditions  included  in  above  approved,  read  and 
agreed,"  written  over  the  signature  of  a  party  to  a  written  pro- 
posal, have  been  held  to  constitute  a  material  alteration.  Publishing 
Co.  v.  Fisher,  10  Utah  147  (37  Pac.  259).  The  words  "privilege  of 
extension  for  thirty  days  after  maturity  given,"  inserted  at  the  bot- 
tom of  a  promissory  note,  and  above  the  signature,  effect  a  material 
alteration.  Flanigan  v.  Phelps,  42  Minn.  186  (43  N.  W.  1113).  See 
also  Bank  v.  Piollet  (Pa.  Sup.),  17  Atl.  603.  The  alteration  in  each 
of  the  cases  referred  to,  from  the  time  it  was  made,  purported  to  be 
in  force,  and  a  part  of  the  instrument,  and  not  a  mere  offer  of  a 
change,  which,  to  be  effectual,  required  an  acceptance  by  the  per- 
sons to  whom  it  was  made.  That  is  also  true  of  the  alteration  in- 
volved in  Bank  v.  Laughlin,  4  N.  D.  391  (61  N.  W.  473),  which 
consisted  in  the  words  "agreeing  to  pay  all  expenses  incurred  by 
suit  or  otherwise  in  attempting  the  collection  of  this  note,  including 
reasonable  attorneys'  fees,"  inserted  in  a  note  after  it  was  made  and 
delivered.  It  was  said  in  that  case  to  be  settled  that  the  alteration) 
of  a  note  non-negotiable  in  form,  so  as  to  invest  it  with  the  form 
and  guise  of  negotiable  paper,  is  a  material  alteration.  "The  quali-i 
ties  essential  to  a  negotiable  promissory  note  are  that  jit  shall  pos-/ 
sess  certainty  as  to  the  payor,  the  payee,  the  amount,  the  time  of 
payment,  and  the  place  of  payment."  Smith  v.  Marland,  59  Iowa 
645.  See  also  Miller  v.  Poage,  56  Iowa  96 ;  Woodbury  v.  Roberts, 
59  Iowa  348 ;  Gordon  v.  Anderson,  83  Iowa  224 ;  Culbertson  v.  Nel- 
son, 93  Iowa  187.  It  is  said  in  Tiedeman  Commercial  Paper,  §§  394, 
395,  that  any  alteration  is  material  which  changes  the  liability  of  the  * 
parties  in  any  way ;  that  the  alteration  avoids  the  paper,  whether  it 
is  favorable  or  unfavorable  to  the  party  making  the  alteration,  for 
the  reason  that  the  alteration  affects  the  identity  of  the  paper,  and 
avoids  it  and  that  an  alteration  is  immaterial  whenever  it  does  not  -' 
change  the  legal  effect  of  the  instrument.  We  are  of  the  opinion 
that  the  better  rule  sustained  by  both  reason  and  authority  is  trrt 
an  alteration  which  does  not  destroy  the  identity  of  a  written  instru- 


350 


SURETYSHIP    DEFENSES 


ment,  nor  in  any  manner  affect  the  liability  thereon  of  the-  surety, 
is  not  such  an  alteration  as  will  release  the  surety.  Bank  v.  Hyde, 
131  Mass.  77;  Bucklen  v.  Huff,  53  Ind.  474;  Barber  v.  Burrows, 
51  Cal.  404;  2  Brandt  Suretyship  (2d  ed.),  §  370;  2  Daniel  Nego: 
tiable  Instruments  (4th  ed.),  §§  1313,  1322.  The  provision  in  ques- 
tion did  not  purpose  to  affect  the  terms  of  the  note,  nor  the  liabili- 
ties of  its  signers.  It  was  in  the  nature  of  an  offer  to  extend  the 
time  for  the  payment  of  the  note,  or  to  renew  it,  on  condition,  how- 
ever, that  all  the  signers  should  unite  in  a  written  request  for  the 
extension  or  renewal.  Until  that  should  be  done,  the  provision  was, 
as  to  the  liability  of  the  signers,  wholly  without  effect,  and  it  could 
not  have  affected  them  in  any  manner  without  a  request  in  writing| 
by  them.  The  right  of  the  sureties  to  enforce  payment  by  the  prin- 
cipals at  the  maturity  of  the  note  remained  intact.  To  release  the 
sureties  under  these  circumstances  would  be  gnrust  and  unauthor- 
ised See  Jackson  v.  Boyles,64  Iowa  428.  The  views  expressed 
dispose  of  the  controlling  questions  in  the  case.  We  do  not  find 
any  ground  for  disturbing  the  judgment  of  the  district  court,  and 
it  is  affirmed. 

See  also  Tranter  v.  Hibberd,  108  Ky.  265,  56  S.  W.  169. 

Contra:  Haskell  v.  Champion,  30  Mo.  136;  McCormack  Harvesting  Mach. 
Co.  v.  Blair,  146, Mo.  App.  374,  124  S.  W.  49. 

An  immaterial  alteration  even  though  fraudulent  will  not  avoid  the  obliga- 
tion.   Moye  v.  Herndon,  30  Miss.  110. 


'/ 


Material  Alteration  Defined  by  Negotiable  Instrument  Code 
General  Code  of  Ohio 

Section  8230.    Any  alteration  is  a  material  alteration  which  changes : 

1.  The  date; 

2.  The  sum  payable,  either  for  principal  or  interest; 

3.  The  time  or  place  of  payment ; 

4.  The  number  or  the  relations  of  the  parties; 

5.  The  medium  or  currency  in  which  payment  is  to  be  made ;  or  which 
adds  a  place  of  payment  when  no  place  is  specified  ;  or  any  other  change  or 
addition  which  alters  the  effect  of  the  instrument  in  any  respect. 


JONES  v.  BANGS  v 

40  Ohio  St.  139,  48  Am.  Rep.  664  (1883). 

Martin,  J.  :x    The  makers  and  payee  of  each  note  are  the  same. 
For  convenience  we  will  consider  the  note  which  reads : 


1  Statement  of  facts  omitted. 


\ 


MATERIAL    ALTERATION  351 


"$1,000.  Chillicotiie,   Ohio,   February    18th,    1873. 

"One  year  after  date  we,  or  either  of  us,  promise  to  pay  to  the 
order  of  Mrs.  J.  J.  Bangs  one  thousand  dollars,  for  value  received — ■ 
with  ten  per  cent,  interest  from  date. 

"C.  B.  Thompson, 
"Wm.  A.  Jones', 
"J.  P.  Steeley, 
"A.  W.  Thompson." 


The  answer  of  the  surety  JjDnjis_rr^dx  allege  sjth  at  after  he  signed 
thejriote  it  was  altered,  without  his  consent,  by  the  addition  oi  the 
wordT^witli  ten  per  cent,  interest  from  date."  By  whom  and  when, 
wlTHheFbefore  or  after  delivery,  or  with  or  without  the  knowledge 
of  the  principal  or  payee,  is  not  stated.  The  plaintiff  making  no  ob- 
jection to  the  answer  on  account  of  this  indefiniteness,  put  in  a  reply 
amounting  to  a  general  denial.  On  this  issue  alone  the  case  went  to 
a  jury  and  testimony  was  given  tending  to  show  an  alteration  as 
charged  in  the  answer.  The  defendant  requested  an  instruction  tOi 
/the  jury  to  the  effect  that  if  they  found  that  the  note  had  been  al- 
tered as  stated  in  the  answer,  then  the  note  sued  on  was  not  the  note! 
i  he  signed  and  the  plaintiff  can  not  recover.  This  instruction  the 
court  properly  refused  to  give.  The  charge  given  was  "that  if  the 
note  was  altered  before  delivery  to  the  payee  without  her  knowl- 
edge or  consent,  such  alteration  will  not  affect  its  validity  in  her 
hands." 

The  only  questions  to  be  decided  arise  upon  this  charge.    As  ap- 
plied to  the  note  under  consideration,  the  charge  is  to  the  effect  that 
a  material  alteration   of   a   complete  note,   made   by   the  principal 
maker,  before  delivery  and  without  the  knowledge  of  the  surety, 
does  not  discharge  the  surety,  unless  such  alteration  was  made  with 
lithe  knowledge,  consent  or  procurement  of  the  payee.   We  think  this 
I  charge  is  manifestly  erroneous.    We  are  sustained  in  this  view  by 
I  numerous  well-considered  adjudications :   in   New  York,   McGrath 
v.  Clark,  56  N.  Y.  34;  Connecticut,  /Etna  National  Bank  v.  Win- 
chester, 43  Conn.  391;  Massachusetts,  Draper  v.  Wood,  112  Mass. 
315;  Pennsylvania,  Fulmer  v.  Steitz,  58  Pa.  St.  237;  Maine,  Water- 
man v.  Vose,  43  Maine  504 ;  Michigan,  Bradley  v.  Mann,  37  Mich. 
1 ;  Indiana,  Schuewinde  v.  Hacket,  54  Ind.  248 ;  Missouri,  Frigg  v. 
Taylor,  27  Mo.  245. 

Many  other  authorities  bearing  directly  on  the  point,  from  the 
same  and  other  states,  are  cited  in  the  able  brief  of  counsel  for 
plaintiff  in  error.  The  alteration  was  certainly  material.  When  it 
was  signed  by  the  surety  the  note  bore  no  interest  before  maturity, 
and  was  for  the  payment  of  $1,000  and  no  more  when  due.  As  al- 
tered it  drew  interest  from  date  and  was  for  the  payment  of  $1,060 
at  maturity.  It  may  be  well  to  remark  (although  it  is  not  an  impor- 
tant circumstance)  that  the  note  is  joint  and  several.    The  principal 


352  SURETYSHIP    DEFENSES 

was  not  a  party  to  the  action ;  and  the  plaintiff  planted  her  case  on 
the  several  promise  of  the  surety.  If  the  surety  is  bound,  it  is  be- 
cause of  his  promise.  There  is  no  intimation  in  the  record  that  his 
alleged  liability  was  assumed  otherwise  than  by  his  written  promise. 
When  he  signed  and  handed  the  note  to  his  principal,  he  thereby  \ 
authorized  its  delivery  as  it  was  then  written.  And  he  would  have  , 
been  bound  accordingly  to  the  payee  or  any  subsequent  bona  fide/ 
holder. 


By  the  subsequent  alteration  its  identity  wasjost^and  therearose  %=*/ 
another  and  distinct  obligation  which  he  had  not  sjgned.  To  hold 
him  bound  by  the  new  contract  he  must,  in  some  way  consistently 
with  legal  principles,  be  concluded  by  the  act  of  his  principal  or 
other  person  in  making  the  alteration.  He  may  be  thus  concluded  by 
authority  previously  given,  or  by  subsequent  ratification,  or  by  con- 
duct on  his  part  raising  an  estoppel.  There  is  no  claim  made  of  sub- 
sequent ratification.  And  there  is  no  suggestion  of  authority  other 
than  the  mere  fact  that  he  entrusted  the  paper  to  his  principal  for 
negotiation.  The  principal  had  the  custody  of  the  note  with  author- 
ity to  deliver  it.  If  the  surety  had  parted  with  the  note,  leaving  a\. 
blank  for  the  insertion  of  the  amount  or  other  material  part,  the/g 
custody  of  the  note  would  have  carried  with  it  unrestricted  authority 
to  fill  the  blank  accordingly.  Fullerton  v.  Sturges,  4  Ohio  St.  599. 
In  this  instance  there  was  no  blank  to  be  filled.  The  surety  carefully 
fixed  in  writing  all  the  terms  of  his  contract — the  day  of  payment 
and  the  precise  amount  he  was  to  pay.  The  note  was  complete  when 
it  left  his  hands,  and  conferred  no  authority  on  anybody  to  alter  it. 

Did  the  conduct  of  surety  estop  him  from  saying  that  the  altera- 
tion was  without  his  consent?    The  record  of  his  conduct  is  brief. 
He  signed  the  note  at  the  request  of  his  principal,  and  handed  it  to 
him  for  delivery  to  the  payee.    This  is  all  of  it.    It  was  a  single 
,  transaction  incapable  of  being  misunderstood. 

It  is  claimed  by  learned  counsel  for  the  defendant  in  error  that 
the  surety  here  falls  within  the  rule,  "Whenever  one  of  two  inno- 
cent parties  must  suffer  by  the  act  of  a  third,  he  who  has  enabled 
such  person  to  occasion  the  loss  must  sustain  it." 

The  application  of  this  rule  to  the  unauthorized  alteration  of  a 
complete  note  by  one  of  the  promisors,  before  delivery,  and  with- 
out the  knowledge  of  the  other,  is  expressly  denied  in  McGrath  v. 
Clark  and  ^Etna  Nat.  Bank  v.  Winchester,  supra. 

The  construction  of  an  instrument  may,  it  is  true,  be  so  faulty 
as  to  afford  exceptional  facilities  for  alteration.  And  in  such  case 
negligence  to  some  extent  may  be  imputed  to  the  maker.  He  may 
possibly  be  said  to  have  enabled  his  comaker  to  commit  the  forgery. 
Every  such  case  must  stand  on  its  own  peculiar  circumstances.  In 
this  record,  however,  we  see  no  evidence  of  negligence  on  the  part 
of  the  surety. 

The  alteration  consisted  of  words  added  at  the  end  of  the  note. 


U76  /b  S  *fO^J 

MATERIAL    ALTERATION  353 

In  what  respect  was  the  surety  negligent  in  not  anticipating  and 
preventing  this  crime?  He  might,  it  is  true,  have  drawn  an  elon- 
gated scroll  from  the  end  of  the  note  before  parting  with  it.  If  this 
was  his  duty,  it  was  likewise  his  duty  to  have  excluded  the  possibility 
of  fraudulent  alteration  on  any  part  of  the  space  within  the  four 
corners.  A  construction  of  the  rule  which  exacts  such  suspicious 
care,  and  requires  the  surety  to  regard  his  principal  as  a  rogue,  is 
untenable  and  wholly  unsuited  to  the  practical  business  methods  of 
our  people. 

The  case  of  Fullerton  v.  Sturges,  supra,  is  confidently  relied  on 
by  the  defendant  in  error,  as  sustaining  the  position  that  the  partici- 
pation of  the  payee  in  a  material  alteration,  before  delivery,  is  neces- 
sary to  avoid  the  note  as  to  a  surety  who  had  no  knowledge  of,  and 
had  given  no  authority  to  make,  the  alteration.  As  we  understand 
that  case,  the  alteration  consisted  in  affixing  a  seal  to  the  name  of 
the  surety  before  delivery  and  was  wholly  immaterial.  Therefore, 
all  that  was  said  by  the  eminent  judge  who  delivered  the  opinion  on 
the  law  relating  to  a  material  alteration,  is  obiter.     *     *     *2 

Judgment  of  the  district  court  reversed. 

See  also  Bank  of  Herington  v.  Wangerin,  65  Kans.  423,  70  Pac.  330,  59  L. 
R.  A.  717;  Hill  v.  O'Neill,  101  Ga.  832,  28  S.  E.  996. 

Effect  of  Alteration  Under  Negotiable  Instruments  Code 

General  Code  of  Ohio,  §  8229.  When  a  negotiable  instrument  is  materially 
altered  without  the  assent  of  all  parties  liable  the-eon,  it  is  voided,  except  as 
against  a  party  who  has  himself  made,  authorized  or  assented  to  the  altera- 
tion and  subsequent  indorsers.  But  when  an  instrument  has  been  materially 
altered  and  is  in  the  hands  of  a  holder  in  due  course,  not  a  party  to  the  alter- 
ation, he  may  enforce  payment  thereof  according  to  its  original  tenor. 

Cf.  National  Exchange  Bank  v.  Lester,  194  N.  Y.  461,  87  N.  E.  779,  21  L. 
R.  A.  (N.  S.)  402n,  16  Ann.  Cas.  770. 


HACKETT  v.  FIRST  NATIONAL  BANK  OF  LOUISVILLE 
114  Ky.  193,  70  S.  W.  664  (1902). 

Opinion  of  the  court  by  Judge  Hobson — affirming. 

Joseph,_Clar-k  applied  to  the  appellant,  J.  L.  Hackett,  to  go  his 
surety  on  a  note  for  $500,  payable  at  the  American  National  Bank 
of  Louisville,  Ky.  Hackett  agreed  to  do  so,  and  signed  the  note 
drawn  by  Clark  for  $500,  but  there  was  a  space  left  in  the  note  be- 
fore the  words  "five  hundred"  and  after  them,  and  Clark  filled  up 
the  first  space  with  the  word  "twenty"  and  the  other  with  the  words 

2  Part  of  opinion  omitted. 
23 — De  Witt. 


354  SURETYSHIP   DEFENSES 

"and  fifty,"  so  as  to  make  the  note  read  as  one  for  $2,550.  There, 
was  nothing  on  the  face  of  the  instrument  to  indicate  the  alteration, 
and  Clark  then  discounted  the  note  in  this  condition  to  appellee,  tin- 
First  National  Bank  of  Louisville,  who  paid  him  the  money  on  it 
without  notice  of  its  infirmity.  The  facts  being  undisputed,  the 
court  properly  held  that  there  was  nothing  to  submit  to  the  jury,  as 
simply  a  question  of  law  was  raised  as  to  the  legal  effect  of  the  con- 
ceded facts.  It  is  argued  that  there  was  enough  on  the  face  of  the  \  ty_ 
note  to  put  the  bank  on  notice,  but,  after  a  careful  examination  of 
the  instrument,  we  are  of  opinion  that  this  position  can  not  be 
maintained.  In  Blakey  v.  Johnson,  13  Bush  197  (26  Am.  Rep.' 
254),  it  was  held,  following  Woolfolk  v.  Bank,  10  Bush  514,  that 
where  the  drawer  of  a  bill  of  exchange  or  the  maker  of  a  negotia- 
ble note  has  himself  by  careless  execution  of  the  instrument,  left 
room  for  insertion  to  be  made  without  exciting  suspicions  of  a 
careful  man,  he  will  be  liable  upon  it  to  a  bona  fide  holder,  with- 
out notice,  when  the  opportunity  which  he  afforded  has  been  em- 
DTaced,  and  the  instrument  filled  up  with  a  larger  amount  than  it 
bore  when  he  signed  it,  on  the  principle  that  he  invited  the  public 
to  receive  it ;  and  should  bear  the  loss,  rather  than  an  innocent 
purchaser.  This  case  was  approved  in  Newell  v.  Bank,  13  Ky. 
Law  775,  and  in  Bank  v.  Haldeman,  109  Ky.  222  (22  R.  717,  58 
S.  W.  587),  as  stating  the  rule  of  law  correctly.  Although  the 
question  here  raised  was  not  presented  in  either  of  these  -cases 
they  at  least  evidence  the  acquiescence  of  the  court  in  the  rule 
that  had  been  laid  down.  It  is  earnestly  argued  for  appellant  that 
the  great  weight  of  authority  is  the  other  way,  and  that  these  cases 
should  be  overruled.  It  is  also  urged  that  the  question  was  really  not 
presented  in  Blakey  v.  Johnson,  but  in  fact  the  judgment  turns  on 
this  question  alone,  and  no  other  was  discussed  by  the  court.  The 
rule  so  declared  is  sustained  by  cases  in  Pennsylvania,  Illinois,  Mis- 
souri, Louisiana  and  Alabama.  Brown  v.  Reed,  79  Pa.  St.  370  (21 
Am.  Rep.  75)  ;  Yocum  v.  Smith,  63  111.  321  (14  Am.  Rep.  120)  ; 
Bank  v.  Armstrong,  62  Mo.  59 ;  Isnard  v.  Torres,  10  La.  Ann.  103 ; 
Young  v.  Lehman.  Durr  &  Co.,  63  Ala.  519.  The  decision  has  re- 
mained the  law  of  the  state  for  a  quarter  of  a  century.  In  the  mean- 
time business  has  been  readjusted  to  it,  and  under  the  principle  of 
stare  decisis,  we  do  not  think  it  ought  now  to  be  departed  from,  for 
in  matters  of  this  kind  it  is  not  so  important  that  the  law  should  be 
rightly  settled  as  that  it  should  remain  stable  after  it  is  settled  ;  and, 
as  has  been  well  said,  "attempts  to  change  the  course  of  judicial  de- 
cisions under  the  pretext  of  correcting  errors  are  like  experiments 
by  the  quack  on  the  human  body.  They  constantly  harass,  and  often 
jeopardize  it."  South's  Heirs  v.  Thomas'  Heirs,  23  Ky.  63.  Again, 
in  Tribble  v.  Taul,  23  Ky.  456,  the  court  after  stating  the  same  rule 
said :  "In  the  Supreme  Court  of  a  state,  as  this  is,  possessing  with 
but  few  exceptions  appellate  judicial  power  coextensive  with  the 


>/i 


MATERIAL    ALTERATION  DDD 

1,     - 

state,  the  influence  which  its  decisions  must  have  is  evident.  Its 
mandates  are  conclusive,  and  even  its  dicta  are  attended  to  in  all  the 
inferior  courts.  No  sooner  is  a  decision  published  than  it  operates 
as  a  pattern  and  standard  in  all  other  tribunals  and  as  a  matter  of 
course,  all  other  decisions  conform  to  it.  If,  in  this  court,  a  settled 
course  of  adjudication  is  overturned,  then  the  trouble  and  confusion 
of  reversing  former  causes  succeeds  in  the  inferior  tribunals ;  and 
even  the  credit  and  respect  due  to  this  court  is  shaken  by  the  phe-  _ 
nomenon  that  A  has  lost  his  cause  on  the  same  ground  that  B  gains 
his.  And  not  only  do  these  consequences  follow,  but  some  still  more 
serious  may  ensue ;  for  perhaps  no  court  may  strike  the  vitals  of 
society  with  a  deeper  wound  than  a  capricious  departure  in  this 
court  from  one  of  its  established  adjudications."  Under  the  rule 
which,  for  a  quarter  of  a  century,  has  been  recognized,  it  has'not 
been  necessary  in  this  state  for  a  purchaser  of  such  paper,  which  is 
fair  on  its  face,  to  make  inquiry  as  to  its  validity  before  buying  it, 
and  much  business  has  been  done  on  this  basis.  In  other  jurisdic- 
tions, where  the  opposite  rule  prevails,  the  practice  has  been  differ- 
ent, and  it  would  be  manifestly  a  violation  of  the  principle  on  which 
the  doctrine  of  stare  decisis  rests,  for  this  court,  after  the  business 
of  the  state  has  adjusted  itself  to  the  rule  which  it  has  laid  down, 
now  to  reverse  itself,  and  lay  down  the  opposite  rule.  Besides,  the 
rule  so  declared  seems  in  keeping  with  the  spirit  and  purpose  of  our 
statute  regulating  paper  of  this  character.  Section  19  of  the  Civil 
Code  of  Practice,  as  follows :  "In  the  case  of  an  assignment  of  a 
thing  in  action,  the  action  by  the  assignee  is  without  prejudice  to 
any  discount,  set-off  or  defense  now  allowed ;  and  if  the  assignment 
be  not  authorized  by  statute  the  assignor  must  be  a  party,  as  plaintiff  . 
or  defendant.  This  section  does  not  apply  to  bills  of  exchange,  nor  /' 
to  promissory  notes  placed  upon  the  footing  of  bills  of  exchange,  nor 
to  common  orders  or  checks."  It  will  thus  be  seen  that  bills  of  ex- 
change, promissory  notes  placed  upon  the  footing  of  bills  of  ex- 
change, and  common  orders  or  checks  are  placed  upon  a  peculiar 
footing.  The  reason  for  this  is  that  a  large  part  of  the  business  of 
the  commercial  world  is  done  through  bills  of  exchange,  bank 
checks,  and  notes  placed  upon  the  footing  of  bills  of  exchange, 
which  pass  from  hand  to  hand  in  many  transactions,  serving  as  a 
substitute  for  money  ;  and  to  promote  this  such  paper  in  the  hands 
of  a  bona  fide  purchaser  is  held  free  from  defenses  which  might 
have  been  made  between  the  original  parties.  By  section  483,  Ken- 
tucky Statutes,  promissory  notes,  payable  to  any  person  or  corpora- 
tion, and  payable  and  negotiable  at  any  bank  incorporated  under  the 
laws  of  this  state,  or  organized  in  this  state  under  the  laws  of  the 
United  States,  which  shall  be  indorsed  to  and  discounted  by  the  bank 
at  which  the  same  is  payable,  or  by  any  of  the  other  banks  above 
specified,  are  thereby  placed  on  the  footing  of  foreign  bills  of  ex- 
change.  The  note  in  question  was  placed  on  the  footing  of  a  bill  of 


356  SURETYSHIP    DEFENSES 

exchange.  It  was  executed  for  the  purpose  of  raising  money.  The 
purpose  of  the  statute  is  to  promote  negotiations  of  paper  of  this 
character  to  facilitate  commercial  transactions  and  obviate  the  ne- 
cessity of  the  use  of  currency.  It  is  in  keeping  with  the  purpose  of 
the  statute  that  he  who  puts  out  paper  which  is  to  pass  in  this  way 
in  commercial  transactions  should  exercise  due  care,  for  it  is  neces- 
sarily intended  to  be  used  in  raising  money  ;  and  the  fair  effect  of  the 
statute  would  be  defeated  if  a  defense  such  as  that  here  made  were 
allowed  against  the  paper  in  the  hands  of  a  bona  fide  holder. 

Judgment  affirmed. 

Chief  Justice  Guffy  dissents. 

Accord :    Isnard  v.  Torres,  10  La.  Ann.  103. 


THE   NATIONAL   EXCHANGE   BANK  OF   ALBANY,   RE- 
SPONDENT, v.  WILLIAM  LESTER,  APPELLANT 

194  N.  Y.  461,  87  N.  E.  779,  21  L.  R.  A.  (N.  S.)  402n,  16  Ann.  Cas.  770  (1909). 

The  defendant  was  sued  as  the  accommodation  indorser  .upoiij, 
note  for  $375  made  by  one  Frank  L.  Fancher  and  acquired  by  the 
plaintiff  bank  before  maturity  in  the  regular  course  of  its  business. 

The  defense  was  that  the  note  as  originally  made  and  indorsed 
was  for  $75  only ;  that  the  maker  thereafter,  without  the  knowl- 
edge or  consent  of  the  indorser,  altered  the  note  by  inserting  in  the 
body  thereof  the  words  "Three  Hundred"  immediately  in  front  of 
the  words  "Seventy-five,"  thereby  making  the  instrument  appar- 
ently a  note  for  $375  instead  of  $75 ;  and  that  the  maker  thereafter 
caused  the  note  as  thus  altered  to  be  discounted  by  the  plaintiff 
bank.  The  answer  prayed  judgment  that  the  complaint  be  dismissed 
except  as  to  the  amount  of  the  note  before  alteration,  together  with 
interest  and  protest  fees,  to  wit,  $78.66.  The  defendant  also  served 
an  offer  to  allow  the  plaintiff  to  take  judgment  for  that  amount. 

Upon  the  trial  the- court  charged  the  jury  that  if  the  note  indorsecTJ 
by  the  defendant  was  in  fact  a  note  for  $375  on  its  face,  the  plaintiff/  K 
was  entitled  to  recover  that  amount  and  interest.  —J    H 

The  trial  judge  further  charged  the  jury  that  if  they  found  that 
there  were  spaces  upon  the  note  "so  carelessly  and  negligently  left 
by  this  indorser,  Mr.  Lester,  that  a  person  having  custody  of  the 
note  might  run  in  a  figure  3  and  the  words  'Three  Hundred'  so  not 
to  occasion  in  the  mind  of  the  indorser  (evidently  meaning  in- 
dorsee) any  inquiry  into  its  validity,"  they  might  find  that  the  in-| 
dorser  conducted  himself  carelessly  and  negligently  in  the  premises 
and  thus  invited  the  liability  which  the  face  of  the  note  called  foil 
when  presented  to  the  bank. 


MATERIAL   ALTERATION  357 


The  defendant  duly  excepted  to  that  part  of  the  charge  to  the 
effect  that  if  the  defendant  was  negligent  in  leaving  blank  spaces, 
the  jury  must  find  a  verdict  for  the  plaintiff  for  the  full  amount  of 
the  note  as  it  stood.  The  court  then  reiterated  the  proposition,  say- 
ing that  "if  the  jury  find  that  the  defendant  was  careless  and  negli- 
»gent  in  leaving  vacant  spaces  for  the  words  and  figures,  such  care-' 
lessness  and  negligence  on  his  part  would  still  make  him  liable  for 
the  note ;"  and  to  this  the  defendant  also  excepted. 

The  jury  found  for  the  plaintiff  in  the  sum  of  $375,  with  interest. 
The  judgment  entered  upon  the  verdict  has  been  unanimously  af- 
firmed by  the  appellate  division. 

Willard  Bartlett,  J. :  As  this  case  went  to  the  jury,  they  might 
well  have  found  that  the  note  in  suit  was  a  note  for  only  seventy-five 
dollars  when  originally  prepared  by  the  maker  and  indorsed  at  his 
instance  by  the  defendant,  and  that  it  had  subsequently  been  altered 
to  a  note  for  three  hundred  and  seventy-five  dollars  when  discounted 
by  the  plaintiff  bank.  They  were  instructed,  in  substance,  however, 
that  the  indorser  was  liable  for  the  amount  of  the  note  as  raised  by 
the  alteration,  if  he  had  been  careless  and  negligent  in  placing  his 
name  upon  the  instrument  while  there  were  spaces  thereon  which 
permitted  the  insertion  of  the  words  and  figure  whereby  it  was  trans- 
muted from  a  note  for  seventy-five  dollars  into  a  note  for  three 
hundred  and  seventy-five  dollars.  Conceding  that  the  contract  which 
he  actually  signed  bound  him  only  to  pay  the  smaller  amount,  the 
jury^vvere  permitted  to  find  that  in  consequence  of  his  negligence  in 
the_res^e^Onili£ated  it  had  become  a  contract  which  bound  him  to 
pay  the  larger  amount  to  a  subsequent  innocent  holder  of  the  paper. 
\n  support  of  the  correctness  of  this  ruling,  the  learned  counsel 
for  the  respondent  asserts  the  doctrine  that  "a  party  to  a  note  who 

.  (puts  his  name  to  it  in  any  capacity  of  liability,  when  it  contains 

planks  uncanceled  facilitating  an  alteration  raising  the  amount,  is 

/liable  for  the  face  of  the  note  as  raised  to  an  innocent  holder  for 

value ;"  and  he  declares  that  this  doctrine  has  been  approved  and 

J  apparently  adopted  in  Alabama,  California,  Colorado,  Illinois,  Kan- 
sas, Kentucky,  Louisiana,  Michigan,  Missouri,  Nebraska  and  Penn- 

i  sylvania. 

In  considering  his  proposition,  it  is  important  to  bear  in  mind  a 
radical  distinction  which  exists  between  two  classes  of  notes  to 
which  the  adjudicated  cases  relate:  (1)  Those  notes  in  which  ob- 
vious blanks  are  left  at  the  time  when  they  are  made  or  indorsed,  of 
such  a  character  as  manifestly  to  indicate  that  the  instruments  are-> 
incomplete  until  such  blanks  shall  be  filled  up;  and  (2)  those  notes 
which  are  apparently  complete,  and  which  can  be  regarded  as  con- 
taining blanks  only  because  the  written  matter  does  not  so   fully 

I  occupy  the  entire  paper  as  to  preclude  the  insertion  of  additional 
words  or  figures  or  both.  It  is  a  note  of  the  latter  class  that  we 
have  to  deal  with  here.    One  who  siens  or  indorses  a  note  of  the 


358 


SURETYSHIP   DEFENSES 


first  class  has  been  held  liable  to  bona  fide  holders  thereof,  in  some 
of  the  cases  cited  by  the  respondent,  according  to  the  terms  of  the 
note  after  the  blanks  have  been  filled,  on  the  doctrine  of  implied  au- 
thority, while  in  other  cases,  relating  to  notes  of  the  second  class, 
the  liability  of  the  maker  or  indorser  for  the  amount  of  the  note  as 
increased  by  filling  up  the  unoccupied  spaces  therein,  is  placed  upon 
the  doctrine  of  negligence  or  estopped  by  negligence. 

The  cases  cited  by  respondent  in  which  parties  to  commercial 
paper  executed  by  them  while  obvious  blanks  remained  unfilled 
thereon  have  been  held  liable  upon  the  instrument  as  completed  by 
filling  out  such  blanks,  on  the  ground  of  implied  authority,  require 
no  further  consideration  here,  as  there  is  no  suggestion  that  there 
was  any  blank  of  this  character  upon  the  note  in  suit.  These  cases 
are  Winter  &  Loeb  v.  Pool  (104  Ala.  580)  ;  Statton  v.  Stone  (61 
Pac.  481,  Colorado)  ;  Cason  v.  Grant  Co.  Deposit  Bank  (97  Ky. 
487)  and  Weidman  v.  Symes  (120  Mich.  657).  There  were  obvious 
blanks  also  in  the  notes  under  consideration  in  Visher  v.  Webster 
(8  Cal.  109)  and  Lowden  v.  S.  C.  Nat.  Bank  (38  Kans.  533),  and 
the  decision  in  each  of  these  cases  appears  to  have  proceeded  upon 
the  doctrine  of  implied  authority  rather  than  negligence. 

It  must  frankly  be  conceded,  however,  that  the  respondent  finds 
support  for  the  doctrine  which  it  asserts  in  the  case  at.  bar  in  the  de- 
cisions of  Pennsylvania,  Illinois  and  Missouri,  so  far  as  the  maker 
of  commercial  paper  is  concerned,  and  in  those  of  Kentucky  and 
Louisiana,  in  respect  to  the  liability  of  a  party  who  has  indorsed  or 
become  surety  upon  a  note  in  which  there  were  spaces  (not  obvious 
blanks)  that  permitted  fraudulent  insertions  enlarging  the  amount. 
(Garrard  v.  Haddan,  67  Pa.  St.  82;  Yocum  v.  Smith,  63  111.  321 ; 
Scotland  Co.  Nat.  Bank  v.  O'Connel,  23  Mo.  App.  165 ;  Hackett  v. 
First  Nat.  Bank  of  Louisville,  114  Ky.  193;  Isnard  v.  Torres  & 
Marquez,  10  La.  Ann.  103.) 

In  Garrard  v.  Haddan  (supra)  a  space  was  left  between  the 
words  "one  hundred"  and  the  word  "dollars"  in  which  "fifty"  had 
been  inserted  after  the  maker  had  signed  and  delivered  it;  and  the 
court  held  the  maker  answerable  to  a  bona  fide  holder  for  the  full 
face  of  the  note  as  altered  on  the  ground  of  the  negligence  of  the 
maker  in  leaving  the  space  in  the  note  which  was  thus  filled  up  after 
execution.  "We  think  this  rule  is  necessary,"  said  Chief  Justice 
Thompson,  "to  facilitate  the  circulation  of  commercial  paper  and 
at  the  same  time  increase  the  care  of  drawers  and  acceptors  of  such 
paper,  and  also  of  bankers,  brokers  and  others  in  taking  it."  It  is  a 
little  difficult  to  see  how  the  rule  tends  to  make  bona  fide  purchasers 
more  careful,  as  this  last  observation  suggests. 

The  case  of  Yocum  v.  Smith  (supra)  held  the  maker  liable  upon 
a  note  which  had  been  raised  after  execution  from  one  hundred 
dollars  to  one  hundred  and  twenty  dollars,  the  words  "and  twenty" 


MATERIAL    ALTERATION  359 

having  been  inserted  in  a  space  left  between  the  word  "hundred" 
and  the  word  "dollars."  The  court  said  that  the  maker  had  acted 
with  unpardonable  negligence  in  signing  the  note  and  leaving  a  blank 
which  could  so  easily  be  filled ;  that  he  had  thus  placed  it  in  the 
power  of  another  to  do  an  injury  and  that  he  must,  therefore,  suffer 
the  resulting  loss.  This  decision  undoubtedly  sustains  the  position 
of  the  respondent,  although  there  was  another  element  of  negligence 
in  that  case  which  is  not  present  here.  It  appeared  that  the  maker 
there  was  informed  by  letter  by  the  purchaser,  very  soon  after' the 
date  of  the  note,  that  he  had  bought  it  and  of  its  date  and  amount ; 
yet  he  made  no  objection  as  to  the  amount  until  nearly  a  year  later. 

In  Scotland  Co.  Nat.  Bank  v.  O'Connel  (supra)  the  defendants 
executed  and  delivered  a  note  for  $100  to  one  Smith,  the  body  of 
which  was  in  his  handwriting,  in  a  condition  which  enabled  him  to 
add  the  words  "thirty-five"  after  "one  hundred"  in  the  written  part 
and  put  the  figures  "$135"  at  the  head  of  the  note  in  the  space 
where  the  amount  is  usually  indicated  by  figures.  The  St.  Louis 
Court  of  Appeals  held  that  the  defendants  were  liable  for  $135  be- 
cause they  had  delivered  the  note  to  Smith,  who  was  their  comaker, 
"in  such  a  condition  as  to  enable  him  to  fill  blank  spaces  without  in 
any  manner  changing  the  appearance  of  the  note  as  a  genuine  in- 
strument." 

The  cases  thus  far  discussed  were  all  of  them  actions  against  the 
makers  of  the  raised  paper.  The  same  rule,  however,  was  applied 
against  an  indorser  in  Isnard  v.  Torres  &  Marquez  (supra)  by  the 
Supreme  Court  of  Louisiana  under  the  following  circumstances : 
Marquez  indorsed  a  note  for  $150  for  the  accommodation  of  Torres. 
The  amount  was  raised  to  $1,150  and  purchased  by  the  plaintiff  in 
good  faith  as  a  note  for  that  sum.  The  report  states  that  there  was 
testimony  of  experienced  persons  to  the  effect  that  if  at  the  time  of 
the  indorsement  the  word  "onze"  (for  eleven,  the  note  being  in 
French)  and  the  additional  figure  before  150  were  not  there  "the 
note  would  have  exhibited  blanks  which  at  least  with  regard  to  the 
written  part  were  unusual  and  calculated  to  attract  attention  and 
would  have  rendered  the  note  unsalable  in  the  market."  In  this 
opinion,  upon  inspection  of  the  note,  the  court  expressed  its  full 
concurrence.  The  indorser  was  held  liable  for  the  amount  of  the 
note  as  raised  on  the  ground  that  he  had  not  exercised  proper  cau- 
tion. To  the  same  effect  is  Hackett  v.  First  Nat.  Bank  of  Louis- 
ville (supra),  where  it  was  held  that  a  surety  who  had  signed  a 
note  in  which  were  written  the  words  "five  hundred"  with  spaces 
before  and  after  them,  which  the  maker  had  filled  up  by  writing 
"twenty"  before  and  "fifty"  after  them,  thereby  making  a  note  for 
$2,550,  was  liable  thereon  to  a  purchaser  in  good  faith.  In  this  case, 
the  attention  of  the  Kentucky  Court  of  Appeals  was  called  to  the 
fact  that  the  great  weight  of  authority  was  the  other  way,  but  in 


360  SURETYSHIP   DEFENSES 

view  of  the  fact  that  the  rule  had  been  so  established  in  Kentucky 
for  a  quarter  of  a  century  the  court  determined  to  adhere  to  it,  in 
observance  of  the  principle  of  stare  decisis. 

This  court  is  not  thus  constrained.  The  question  involved  in  the 
present  appeal  has  not  been  authoritatively  decided  in  this  state  and 
we  are  at  liberty  to  adopt  that  view  of  the  law  which  seems  to  us 
most  consonant  with  sound  reason  and  best  supported  by  well- 
considered  adjudications  in  other  jurisdictions. 

The  outcome  of  these  adjudications  is  accurately  set  forth,  as  it 
seems  to  me,  by  Air.  Randolph  in  his  treatise  on  the  law  of  com- 
mercial paper,  as  follows : 

"Where  negotiable  paper  has  been  executed  with  the  amount 
blank,  it  is  no  defense  against  a  bona  fide  holder  for  value  for  the 
maker  to  show  that  his  authority  has  been  exceeded  in  filling  such 
blank,  and  a  greater  amount  written  than  was  intended.  This  was 
also  once  held  to  be  the  rule  where  no  blank  had  been  actually  left, 
but  the  maker  had  negligently  left  a  space  either  before  or  after  the 
written  amount  which  made  it  easier  for  a  holder  fraudulently  to 
enlarge  the  sum  first  written.  It  has  now,  however,  become  in 
America  an  established  rule  that  if  the  instrument  was  complete 
without  blanks  at  the  time  of  its  delivery,  the  fraudulent  increase 
of  the  amount  by  taking  advantage  of  a  space  left  without  such  in- 
tention *  *  *  will  constitute  a  material  alteration  and  operate 
to  discharge  the  maker."  (1  Randolph  on  Commercial  Paper,  p. 
198.) 

The  rule  thus  stated  is  sustained  by  the  decisions  of  the  court  of 
last  resort  in  Massachusetts,  Michigan,  New  Hampshire,  Iowa, 
Maryland,  Mississippi,  "Arkansas  and  South  Dakota.  .  In  my  judg- 
ment it  rests  on  a  sounder  basis  than  the  opposite  doctrine  and  ac- 
cords better  with  such  adjudications  of  this  court  as  bear  more  or 
less  directly  on  the  question  involved. 

The  leading  case  sustaining  this  view  is  Greenfield  Savings  Bank 
v.  Stowell  (123  Mass.  196),  in  which  the  opinion  was  written  by 
Chief  Justice  Gray,  afterward  an  associate  justice  of  the  Supreme 
Court  of  the  United  States.  The  discussion  is  careful  and  ex- 
haustive, reviewing  all  the  important  cases  in  England  and  Amer- 
ica bearing  upon  the  subject  which  had  been  decided  up  to  that 
time  (1877)',  including  that  of  the  Supreme  Court  of  Pennsylvania 
in  Garrard  v.  Haddan  (supra),  which  was  the  principal  authority 
the  other  w7ay.  I  shall  not  undertake  to  review  the  same  authori- 
ties here  or  paraphrase  the  opinion  of  Chief  Justice  Gray  which 
deals  with  them  in  such  a  manner  as  fully  to  justify  his  rejection 
of  the  doctrine  that  the  makers  of  a  promissory  note  apparently 
complete  when  they  sign  it  are  liable  for  an  amount  to  which  it 
may  subsequently  be  raised,  without  their  knowledge  or  consent, 
on  the  ground  that  they  were  negligent  in  permitting  spaces  to  re- 
main thereon  in  which  the  figures  and  words  which  effected  the  in- 


MATERIAL    ALTERATION  361 

crease  could  be  inserted.  In  support  of  his  conclusion,  however,  he 
quotes  some  passages  from  the  opinion  of  Christancy,  J.,  in  Holmes 
v.  Trumper  (22  Mich.  427),  which  will  bear  repetition  as  suggest- 
ive of  some  of  the  reasons  why  the  forgery  of  a  promissory  note 
should  not  be  held  to  create  a  contract,  which  the  party  sought  to 
be  charged  never  consciously  made  himself  or  authorized  anybody 
else  to  make  in  his  behalf.  Speaking  of  the  alleged  negligence  in 
leaving  spaces  on  the  note,  Mr.  Justice  Christancy  said :  "The  neg- 
ligence, if  such  it  can  be  called,  is  one  of  the  same  kind  as  might 
be  claimed  if  any  man,  in  signing  a  contract,  were  to  place  his 
name  far  enough  below  the  instrument  to  permit  another  line  to  be 
written  above  his  name  in  apparent  harmony  with  the  rest  of  the 
instrument.  *  *  *  Whenever  a  party  in  good  faith  signs  a  com- 
plete promissory  note,  however  awkwardly  drawn,  he  should,  we 
think,  be  equally  protected  from  its  alteration  by  forgery  in  what- 
ever mode  it  may  be  accomplished ;  and  unless,  perhaps,  when  it 
has  been  committed  by  some  one  in  whom  he  has  authorized  others 
to  place  confidence  as  acting  for  him,  he  has  quite  as  good  a  right 
to  rest  upon  the  presumption  that  it  will  not  be  criminally  altered, 
as  any  person  has  to  take  the  paper  on  the  presumption  that  it  has 
not  been ;  and  the  parties  taking  such  paper  must  be  considered  as 
taking  it  upon  their  own  risk,  so  far  as  the  question  of  forgery  is 
concerned,  and  as  trusting  to  the  character  and  credit  of  those  from 
whom  they  receive  it,  and  of  the  intermediate  holders." 

While  a  general  reference  to  the  cases  cited  and  reviewed  by 
Chief  Justice  Gray  in  Greenfield  Savings  Bank  v.  Stowell  (supra) 
will  suffice,  there  are  some  later  decisions  to  which  attention  may  be 
called.  In  Knoxville  Nat.  Bank  v.  Clark  (51  Iowa  264)  will  be 
found  a  strong  and  well-reasoned  opinion  against  holding  a  party 
to  a  note  which  has  been  fraudulently  raised,  after  it  left  his  hands, 
liable  for  negligence,  because  when  he  executed  the  instrument 
there  were  spaces  left  thereon  (not  being  obvious  blanks  designed 
to  be  filled)  which  would  permit  of  forgery.  The  trial  court  had 
rendered  judgment  against  the  maker  for  the  amount  of  the  note 
as  raised  from  $10  to  $110  on  a  finding  of  negligence  in  leaving  a 
space  before  the  word  "ten"  and  the  figures  "10."  "On  this 
ground,"  said  the  Supreme  Court  of  Iowa,  "the  court  proceeded 
and  the  decision  is  based  on  the  reasoning  of  the  civil  lawyers. 
But  could  it  be  anticipated  that  such  negligence  would  cause  an- 
other to  commit  a  crime,  and  can  it  be  said  a  person  is  negligent 
who  does  not  anticipate  and  provide  against  the  thousand  ways 
through  or  by  which  crime  is  committed?  It  is  not  requiring  of 
the  ordinary  business  man  more  diligence  than  can  be  maintained 
on  principle,  or  is  practicable,  if  he  is  required  to  protect  and  guard 
his  business  transactions  so  that  he  can  not  be  held  liable  for  the 
criminaLacts^  of  another.  If  so,  why  should  not  the  negligence  of 
the^ewner  of  goods  which  are  stolen  excuse  the  bona  fide  p>ur- 


362  SURETYSHIP   DEFENSES 

chaser?"  And  referring  to  the  argument  that  such  a  measure  of 
liability  is  required  to  promote  the  free  interchange  of  commercial 
paper  (a  view  which  seems  to  have  been  influential  in  the  Pennsyl- 
vania- case  of  Garrard  v.  Haddan)  the  court  well  said:  "At  the 
present  day  negotiable  paper  is  not  ordinarily  freely  received  from 
unknown  persons.  Forgeries,  however,  are  not  confined  to  such. 
But  the  necessities  of  trade  and  commerce  do  not  require  the  law 
to  be  so  construed  as  to  compel  a  person  to  perform  a  contract 
he  never  made  and  which  it  is  proposed  to  fasten  on  him  because 
some  one  has  committed  a  forgery  or  other  crime." 

In  Burrows  v.  Klunk  (70  Md.  451)  the  Maryland  Court  of  Ap- 
peals emphasizes  the  distinction  between  a  note  in  blank  as  to  the 
amount,  when  signed  and  delivered  to  another  for  use,  and  a  note 
complete  on  its  face  when  signed  and  delivered,  in  which  has  been 
written  the  sum  payable,  the  date,  the  time  of  payment  and  name 
of  the  payee.  "In  such  case,"  it  is  held  "there  can  be  no  inference 
that  the  defendant  authorized  any  one  to  increase  the  amount, 
simply  because  blank  spaces  were  left  in  which  there  was  room 
enough  to  insert  a  larger  sum." 

No  one  questions  the  proposition  that  where  a  party  to  commer- 
cial paper  intrusts  it  to  another  with  a  blank  thereon  designed  to  be 

-  filled  up  with  the  amount  such  party  is  liable  to  a  bona  fide  holder 
of  the  instrument  for  the  amount  filled  in,  though  it  be  larger 
than  was  stipulated  with  the  person  to  whom  immediate  delivery 
was  made.  (Van  Duzer  v.  Howe,  21  N.  Y.  531.)  So,  also,  a  note 
executed  with  a  blank  therein  for  a  statement  of  the  place  of  pay- 
ment is  not  avoided  in  the  hands  of  a  bona  fide  holder  for  value 
by  the  insertion  in  the  blank  of  a  place  different  from  that  agreed 
upon  by  the  original  parties.  (Redlich  v.  Doll,  54  N.  Y.  234.) 
But  where  there  is  no  blank  for  that  purpose  when  the  note  is  in- 
dorsed, the  insertion  of  an  obligation  to  pay  interest  is  a  material 
alteration  which  invalidates  the  instrument  as  against  the  indorser. 
(McGrath  v.  Clark,  56  N.  Y.  34.)  In  the  case  last  cited  the  note 
when  indorsed  ended  with  the  word  "at,"  followed  by  a  space  in 
which  the  maker,  after  indorsement,  inserted  a  place  of  payment, 
adding  the  words  "with  interest ;"  but  no  suggestion  appears  to 
have  been  made  that  because  the  space  left  was  large  enough  to 
allow  the  insertion  of  these  words,  the  indorser  was  negligent  and 
could  be  charged  with  the  amount  of  the  note,  including  the  interest, 
on  that  ground.    On  the  contrary,  as  the  law  then  stood,  he  was  re- 

r  lieved  of  all  liability  whatever  as  the  effect  of  the  unauthorized  al- 
teration. Now,  however,  under  the  Negotiable  Instruments  Law 
(O  205)  he  would  be  liable  on  the  paper  according  to  its  original 
tenor. 

To  sustain  the  judgment  in  the  case  at  bar  in  view  of  the  in- 
structions under  which  the  issues  were  submitted  to  the  jury,  we 
must  hold  that  the  indorser  of  a  promissory  note,  the  amount  of 


MATERIAL    ALTERATION  363 

which  has  been  fraudulently  raised  after  indorsement,  by  means 
of  forgery,  is  liable  upon  the  instrument  in  the  hands  of  a  bona  fide 
holder,  for  the  increased  amount,  because  of  negligence  in  in- 
dorsing the  same  when  there  were  spaces  thereon  which  rendered 
the  forgery  easy,  though  the  note  was  complete  in  form.  To  do 
this  would  be  to  create  a  contract  through  the  agency  of  negligence ; 
for  the  action  is  not  in  tort  for  damages,  but  upon  the  contract  as 
expressed  in  the  note.  But  apart  from  any  question  as  to  the  form 
in  which  the  indorser  is  sought  to  be  charged,  I  am  of  opinion  that 
[nonliability  on  the  part  of  the  indorser  for  the  amount  of  such  a 
note  as  raised  can  be  predicated  simply  upon  the  fact  that  such 
spaces  existed  thereon.  This  conclusion  I  base  upon  the  authorities 
to  that  effect  which  I  have  already  discussed  and  upon  what  seem 
to  me  to  be  considerations  of  sound  reason  independent  of  judicial  -t 
authority.  An  averment  of  negligence  necessarily  imports  the  ex-  < 
istence  of  a  duty.  What  duty  to  subsequent  holders  of  a  promis- 
sory note  is  imposed  by  the  law  upon  a  person  who  is  requested  to 
indorse  the  paper  for  the  accommodation  of  the  maker  and  who 
complies  with  such  request?  It  is  a  complete  instrument  in  all  re- 
spects— as  to  date,  name  of  payee,  time  and  place  of  payment  and 
amount.  There  are,  it  is  true,  spaces  on  the  face  of  the  instrument  [ 
in  which  it  is  possible  to  insert  words  and  figures  which  will  en- 
large the  amount  and  still  leave  the  note  apparently  a  genuine  in- 
strument— in  other  words,  there  is  room  for  forgery.  On  what 
theory  is  the  indorser  negligent  because  he  places  his  name  on  the 
paper  without  first  seeing  to  it  that  these  spaces  are  so  occupied  by  ^ 
cross  lines  or  otherwise  as  to  render  forgery  less  feasible?  It  can 
only  be  on  the  theory  that  he  is  bound  to  assume  that  those  to 
whom  he  delivers  the  paper  or  into  whose  hands  it  may  come  will 
be  likely  to  commit  a  crime  if  it  is  comparatively  easy  to  do  so.  I 
deny  that  there  is  any  such  presumption  in  the  law.  It  would  be  a-j 
stigma  and  reflection  upon  the  character  of  the  mercantile  com- 
munity and  constitute  an  intolerable  reproach  of  which  they  might 
well  complain  as  without  justification  in  practical  experience  or  the 
conduct  of  business.  That  there  are  miscreants  who  will  forge 
commercial  paper  by  raising  the  amount  originally  stated  in  the  in- 
strument is  too  true  and  is  evidenced  by  the  cases  in  the  law  reports 
to  which  we  have  had  occasion  to  refer ;  but  that  such  misconduct 
is  the  rule,  or  is  so  general  as  to  justify  the  presumption  that  it  is 
to  be  expected  and  that  business  men  must  govern  themselves  ac- 
cordingly, has  never  yet  been  asserted  in  this  state  and  I  am  not  , 
willing  to  sanction  any  such  proposition  either  directly  or  by  im- 
plication. On  the  contrary  the  presumption  is  that  men  will  do 
rigjht  rather  than  wrong.  (See  F> radish  v.  Bliss,  35  Vt.  326.)  As 
was  said  by  Judge  Cullen  in  Critten  v.  Chemical  Nat.  Bank  (171 
N.  Y.  219,  224),  it  is  not  the  law  that  the  drawer  of  a  check  is 
bound  so  to  prepare  it  that  nobody  else  can   successfully  tamper  ' 


364 


SURETYSHIP   DEFENSES 


with  it.     Neither  is  it  the  law  that  the  indorser  of  a  promissory 
note  complete  on  its  face  may  be  made  liable  for  the  consequences 
of   a    forgery  thereof    simply   because   there   were   spaces   thereon  / 
which  rendered  the  forgery  easier  than  would  otherwise  have  been 
the  case.  % 

I  think  the  judgment  of  the  appellate  division  should  be  reversed 
and  a  new  trial  granted,  with  costs  to  abide  the  event. 

Cullen,  Ch.  J.,  Gray,  Haight,  Weener,  Hiscock  and  Chase,  JJ., 
concur. 

Judgment  reversed,  etc. 

"The  material   alteration   of   a  promissory  note  by  a   stranger   is   a   mere 
spoliation    of   the   instrument,    and   the   rights   and    liabilities   of    the   parties 
ire  not  affected  by  such  alteration."    Daniels  on  Neg.  Inst.,   1373A 


^U^w',- 


■'\  *^ 


- 


(c)    Alterations  Beneficial  to  Promisor 

SXODGRASS  v.  SHADER 
113  Ark.  429,  168  S.  IV.  567  (1914). 

This  suit  was  brought  by  the  appellee  to  recover  of  the  sureties 
upon  a  bond  of  Pat  W.  Snodgrass,  lessee,  the  rent  for  certain 
premises  in  Little  Rock  which  he  had  failed  to  pay.  Appellee  was 
the  owner  of  buildings  Nos.  717  and  719  on  Main  street  in  the 
city  of  Little  Rock,  and  on  January  6,  1910,  leased  the  first  floors 
of  these  buildings  as  store  rooms  to  Pat  W.  Snodgrass  for  a  period 
of  three  years  from  January  1,  1910,  for  the  monthly  rental  of  $100, 
in  advance,  and  on  January  6,  1910,  Pat  W.  Snodgrass,  with  L.  K. 
Snodgrass  and  Wm.  A.  Snodgrass,  as  sureties,  appellants  herein, 
executed  and  delivered  to  appellee  a  bond  to  secure  the  payment 
of  said  rent  conditioned  as  follows :  "The  conditions  of  the  above 
bounden  obligation  are  such  that  whereas  Pat  W.  Snodgrass  has 
entered  into  a  written  lease  for  the  term  of  three  years,  beginning 
January  1.  1910,  and  ending  January  1,  1913,  for  the  lower  floors 
or  store  rooms  at  717  and  719  Main  street,  Little  Rock,  Ark.,  for 
the  monthly  rent  of  one  hundred  dollars  per  month,  payable  on  the 
first  day  of  each  and  every  month  in  advance. 

"Now,  therefore,  if  the  said  Pat  W.  Snodgrass  shall  promptly  pay 
the  rent  as  set  out  herein,  then  this  obligation  to  be  null  and  void ; 
otherwise  to  remain  in  full  force  and  effect  for  any  and  all  amounts 
up  to  the  face  of  this  bond  for  arrearages  for  rent.  No  obligation 
to  become  fixed  as  against  this  bond  until  there  is  default  in  pay- 
ment of  rent." 

On  November  1,  1910,  the  appellee,  the  lessor,  and  the  lessee, 


%KL 


MATERIAL   ALTERATION  365 


Pat  W.  Snodgrass,  made  another  contract  whereby  the  lessor  paid 
to  him  the  sum  of  $250  for  which  he  released  and  surrendered  to 
her  store  room  No.  719,  and  he  retained  the  other  store  room  at  a 
reduced  rental  of  $50  per  month.  The  lessor  immediately  rented 
the  store  room  surrendered  to  her  to  another  person  for  $75 
per  month.  This  release  of  the  store  room  719  to  the  lessor  was 
not  known  of  nor  consented  to  by  the  sureties. 

THereaTter  the"  lessee  defaulted  in  the  payment  of  five  months 
rent,  the  months  of  June,  July,  August,  September  and  October,  • 
of  1912,  at  $50  per  month,  and  suit  was  brought  against  him  and 
his  sureties  therefor,  and  the  sureties  claim  to  have  been  discharged 
from  liability  because  of  the  material  alteration  of  the  contract  , 
without  their  consent.  Upon  the  trial  judgment  was  recovered 
against  them,  to  reverse  which  this  appeal  is  prosecuted. 

Kirby,  J.  (after  stating  the  facts)  :     The  only  question  presented 

Ofor  consideration  is  whether  appellants  have  been  discharged  from 
liability  on  the  bond,  executed  by  the  lessee  to  the  lessor  for 
securing  the  payment  of  the  rent,  upon  which  they  are  sureties.  It 
is  conceded  that  before  the  end  of  the  first  year  of  the  term  of  the 
lease,  the  lessee  agreed  with  the  lessor  to,  and  did  surrender,  one  \ 
of  the  store  rooms  and  release  it  to  the  lessor  for  the  consideration 
of  $250  paid  by  her,  and  that  she  immediately  thereafter  leased  said 
store  room  for  $75  per  month.  This  was  done  without  the  knowl- 
edge or  consent  of  the  sureties  upon  the  bond.  It  was  a  material 
alteration  of- the.  terms  of  the  contract  without  their  consent,  and 
released  them  from  the  further  performance  of  it.    They  may  have 

'  been  perfectly  willing  to  have  been  bound  for  the  payment  of  $100 
rent  for  the  two  store  rooms,  and  had  a  right  certainly  to  rely  upon 
their  principal  paying  his  rent  out  of  the  entire  property  leased.  If 
he  had  abandoned  it,  they  could  have  taken  his  place  and  would 
have  been  in  much  better  condition  to  save  themselves  a  loss  with 
both  the  store  rooms.  The  one  released  was  immediately  there- 
after rented  for  $75  per  month,  and  the  two  store  rooms  might  have 
been  more  easily  rented  together  than  separately.  The  courts  have  ! 
long  held  that /any  material  alteration  in  the  terms  of  the  contract, 
whereby  a  sureTyis  bound,  discharges  the  surety  if  he  has  not  con- 
sented'to  tire  change,  and  this  is  so  even  if  the  alteration  be  for  the 
benefit  of  the  surety ;  for,  although  the  principals  may  change  their 
contract  to  suit  their  pleasure  or  convenience,  they  can  not  bind 
the  surety  thereto  without  his  consent,  and,  as  the  new  contract  ab- 
rogates the  old,  the  surety  is  discharged  from  all  liability  unless  he 
has  consented  to  the  alteration.  O'Neal  v.  Kelley,  65  Ark.  550; 
Singer  Manufacturing  Company  v.  Boyette,  74  Ark.  601 ;  1  Brandt 
on  Suretyship,,  p.  427;  Hubbard  v.  Reilly,  98  N.  E.  886;  Warren 
v.  Lyons,  9  L.  R.  A.  353 ;  Stern  v.  Sawyer,  61  Atl.  36 ;  Miller  v. 
Stewart,  9  Wheaton  702;  Penn.  v.  Collins,  5  Rob.  (La.)  213.  In 
Berman  v.  Shelby,  93  Ark.  479,  the  court  said :  "For  a  surety  will 


sA 


366 


SURETYSHIP   DEFENSES 


be  discharged  by  any  material  and  unauthorized  alteration  of  his 
contract,  and  it  is  immaterial  that  the  principal  assured  the  obligee 
that  the  alteration  would  not  affect  the  original  contract,  or  that 
he  failed  to  carry  out  the  contract  as  altered." 

-Appellants  were  only  sureties  for  the  payment  of  the  rent  in  ac- 
cordance with  the  terms  of  their  bond  and  the  lease  in  case  of  the  ;  , 
— '  lessee's   failure   to   pay,   and  the   contract  having  been   materially 
;  changed  without  their  consent,   they  were  thereby   released   from 
I  further  liability.     The  judgment  is   reversed  and  the  cause  dis- 
missed. 

Accord :  Driscoll  v.  Winters,  122  Cal.  65,  54  Pac.  387 ;  Bethune  v.  Dozier, 
10  Ga.  235 ;  Weir  Plow  Co.  v.  Walmsley,  110  Ind.  242,  11  N.  E.  232;  Hubbard 
v.  Reillv,  51  Ind.  App.  19,  98  N.  E.  886. 


*& 


CAMBRIDGE  SAVINGS  BANK  v.  HENRY  D.  HYDE  ETAL, 

EXECUTORS 

131  Mass.  77,  41  Am.  Rep.  193  (1881). 

Morton,  J. :  This  is  a  suit  against  the  executors  of  one  of  the 
sureties  upon  a  promissory  note  held  by  the  plaintiff.  By  the  note, 
which  is  dated  October  16,  1871,  the  maker  promises  to  pay  to  the 
plaintiff  $6,000  on  demand,  with  interest  at  the  rate  of  seven  and 
one-half  per  cent,  per  annum,  payable  semi-annually.  At  the  trial,  it! 
appeared  that  the  treasurer  of  the  plaintiff,  some  years  after  the 
date  of  the  note,  having  authority  to  do  so,  wrote  upon  the  back  of/ 
the  note  the  memorandum,  "Rate  of  interest  to  be  6T/>  per  cent, 
from  Oct.  10,  1876."  The  defendants  asked  the  court  to  rule  "that  i 
any  change  in  the  rate  of  interest  of  the  note,  whether  made  on 
the  face  of  the  note  or  by  a  memorandum  in  the  margin  or  upon 
the  back  of  the  note,  was  a  change  in  the  terms  of  the  contract,  and 
a  material  alteration  of  the  note  such  as  would  discharge  the  de- 
fendants' testator,  if  made  without  his  consent,  and  that  the  in- 
dorsement upon  the  back  of  the  note  in  suit  was  such  an  altera- 
tion ;"  which  ruling  the  court  refused. 

The  defendants  contend,  in  the  first  place,  that  this  memorandum 
thus  made  was  a  material  alteration,  in  the  sense  of  a  mutTTafion 
of  the  note,  which  avoided  it  as  to  all  parties  not  consenting  to  it. 
In  the  cases  where  it  has  been  held  that  a  material  alteration  of  a 
note  or  other  contract  avoids  it,  there  has  been  some  change  by 
erasure  or  interlineation  in  the  paper  writing  constituting  the  evi- 
dence of  the  contract,  so  as  to  make  it  another  and  different  instru- 
ment, and  no  longer  evidence  of  the  contract  which  the  parties 
made.  The  ground  of  the  decisions  is  that  the  identity  of  the  con- 
tract is  destroyed.     Wade  v.  Withington,   1  Allen  561 ;  Common- 


^MATERI^L   ALTERATION  367 

wealth  v.  Emigrant  Savings  Bank,  98  Mass.  12 ;  Belknap  v.  Na- 
tional Bank  of  North  America,  100  Mass.  376;  Hewins  v.  Cargill, 
67  Maine  554.  But  in  the  case  at  har  it  is  clear  that,  using  the 
word  in  this  sense,  there  has  been  no  alteration  of  the  note.  The 
original  note  remains  intact.     It  is  in  no  respect  altered  or  made 

/  different.     The  memorandum  on  the  back  is  evidence  of  an  inde- 

/  •  pejidern^oJIateral agreement,  and  has  no  more  effect  than  if  it  had 
/I  been  written  on  a  separate  paper.  Stone  v.  White,  8  Gray  589. 
~~The  detencIanfTalso  contend  that,  if  the  memorandum  is  to  be 
treated  as  an  independent  collateral  agreement,  yet  it  makes  such 
a  change  in  the  terms  of  the  contract  as  to  discharge  the  sureties, 
who  did  not  consent  to  it.  It  is  clear  that,  if  a  creditor  makes  any 
agreement  with  the  principal  debtor,  or  does  any  other  act  which 
i]Tp_re judicial  to  the  rights  of  the  surety,  the  surety  is  discharged 
from  his  liability.  Thus,  if  the  creditor,  by  a  valid  agreement 
founded  upon  a  sufficient  consideration,  extends  the  time  of  pay- 

i^_mehTof_the  debt,  the  surety  is  discharged.  The  reason  is  that  such 
an  agreement  materially  affects  the  rights  of  the  surety,  since  it 
prevents  him  from  paying  the  debt  and  having  an  immediate  rem- 
edy against  the  principal  debtor.  Hunt  v.  Bridgham,  2  Pick.  581  ; 
Agricultural  Bank  v.  Bishop,  6  Gray  317.  Mr.  Justice  Story  states 
the  rule  to  be,  "that  if  a  creditor  does  any  act  injurious  to  the 
surety,  or  inconsistent  with  his  rights;  or  if  he  omits  to  do  any 
act,  when  required  by  the  surety,  which  his  duty  enjoins  him  to 
do,  and  the  omission  proves  injurious  to  the  surety ;  in  all  such 
cases  the  latter  will  be  discharged."  1  Story  Eq.  Jur.,  p.  325.  TI12 
surety  is  discharged  because  the  act  of  the  creditor  is  injurious  to 
him  and  is  inconsistent  with  the  duty  which  the  creditor  owes  to 
him.  Where  the  act  of  which  the  surety  complains  is  a  new  agree- 
ment changing  some  of  the  terms  of  the  original  agreement,  we 
think  the  rule  is  that,  if  such  new  agreement  is  or  may  be  injurious 
to  the  surety,  or  if  it  amounts  to  a  substitution  of  the  new  agree- 
ment for  the  old,  so  as  to  discharge  and  put  an  end  to  the  latter, 
the  surety  is  discharged.  But  if  the  change  in  the  original  contract 
from  its  nature  is  beneficial  to  the  surety,  or  if  it  is  self-evident 

What  it  can  not  prejudice  him,  the  surety  is  not  discharged.  Smith 
v.  United  States,  2  Wall.  219;  Appleton  v.  Parker,  15  Gray  173; 
General  Steam  Navigation  Co.  v.  Rolt,  6  C.  B.  ( N.  S.)  550;  Bow- 
maker  v.  Moore,  7  Price  223 ;  Holme  v.  Brunskill,  3  O.  B.  D.  495. 
In  the  case  at  bar,  the  new  agreement  was  that,  after  a  day 
named,  the  interest  on  the  principal  sum  lent  by  the  plaintiff  should 
be  at  the  rate  of  six  and  a  half  instead  of  seven  and  a  half  per  cent. 
It  was  clearly  not  the  intention  of  the  parties  to  discharge  the  note 
and  substitute  a  new  contract  in  its  place.  The  agreement  presup- 
poses that  the  note  is  to  remain  in  force  as  a  promise  to  pay  the 
principal  debt.  The  parties  did  not  intend  to  release  the  principal 
debtor  or  the  sureties  from  their  obligation  to  pay  the  note,  but  only 


' 


368 


SURETYSHIP   DEFENSES 


to  remit  a  portion  of  the  interest  payable  under  it  for  the  use  of 
the  money.  We  know  of  no  rule  of  law  which  requires  us  to  de- 
feat the  intention  of  the  parties  by  holding  that  this  operated  to 
discharge  the  original  contract  in  whole.  It  is  also  clear  that  the 
change  in  the  original  contract,  by  reducing  the  rate  of  interest, 
could  not  be  prejudicial  to  the  sureties.  It  is  to  be  borne  in  mind 
that  there  was  no  contract  by  the  plaintiff  giving  time  to  the  prin- 
cipal debtor,  and  no  contract  by  the  debtor  that  the  amount  of  the 
note  should  remain  on  interest  at  the  new  rate  for  any  time.  The 
plaintiff  could  at  any  time  have  sued  on  the  note  and  have  had  a 
right  to  sue  their  principal  at  once.  The  agreement  was  merely  a 
stipulation  to  remit  a  part  of  the  sum  which  the  plaintiff  might  claim 
under  the  note.  It  did  not  tie  the  hands  of  the  creditor,  or  alter 
unfavorably  the  condition  of  the  surety.  If  there  was  any  consid- 
eration for  it,  so  that  it  had  any  validity,  it  could  not  operate  to  the 
injury  of  the  sureties,  any  more  than  an  indorsement  of,  or  a  re- 
.  ceipt  for,  a  part  of  the  principal  would.  The  change  made  injhe 
terms  of  the  note  was  necessarily  beneficial  to  all  parties  bound  by_ 
itTTWe  are~of  opinion  that  the  sureties  were  not  discharged,  even  if 
they  had  no  knowledge  of  the  change ;  and  that  the  ruling  of  the 
superior  court  to  that  effect  was  correct. 
Judgment  on  the  verdict  for  the  plaintiff. 

Accord:  Ullmann  Realty  Co.  v.  Hollander,  123  N.  Y.  S.  772;  Ganev  v. 
Hohlman,  145  111.  App.  467 ;  Preston  v.  Huntington,  67  Mich.  139,  34  N.  W. 
279. 


SECTION  2.    CHANGE  OF  PARTIES 


(a)    Addition  of  New  Party  as  Maker 


CATTON  v.  SIMPSON 
8  Ad.  &  Ellis  136  (1838). 


Plea,  non 


Assumpsit  for  money  paid,  and  on  an  amount  stated 
assumpsit. 

On  the  trial  before  Patteson,  J.,  at  the  last  York  assizes,  it  ap- 
peared that  in  1831  the  defendant  was  indebted  to  a  person  named 
Allen,  since  deceased,  in  the  sum  of  £120;  and  that  the  plaintiff  gave 
Allen  a  promissory  note  for  the  amount.  The  note  was  in  the 
words  "we  jointly  and  severally  promise,  etc. ;"  and  to  the  plain- 
tiff's signature,  which  followed  defendant's,  were  added  the  words 
"as  his  surety."  After  Allen's  death  the  defendant  was  called  on 
by  Allen's  executors  to  pay  the  money.  Time  was  allowed  him,  at 
his  request,  upon  a  person  named.  Laybourne  adding  his  signature 
as  additional  security.;  it  did  not  appear  that  this  was  done  in  pur- 


CHANGE   OF   PARTIES  369 

suance  of  any  understanding  which  had  existed  at  the  time  of 
making  the  note.  Plaintiff  and  Laybourne,  being  afterward  called 
on  by  the  executors,  paid  cash  one-half  of  the  note.  This  action 
was  brought  to  recover  from  the  defendant  the  amount  so  paid  by 
the  plaintiff.  The  defendant's  counsel  contended  that  the  addition 
of  Laybourne's  name  vitiated  trje  note. 

The  learned  judge  directed  a  verdict  for  the  plaintiff  and  re- 
served leave  to  the  defendant  to  move  for  a  nonsuit. 

Lord  Denman,  C.  J. :  In  the  absence  of  all  authority,  we  shall 
hold  that  this  was  not  an  alteration  of  the  note,  but  merely  an  ad- 
dition which  had  no  effect. 

Littledale,  Patteson  and  Coleridge,  JJ.,  concurred. 

Rule  refused. 


AAA 

McCAUGHEY  ET  AL.  v.  SMITH  ET  AL. 

27  N.  Y.  39  (1863). 

Appeal  from  the  Supreme  Court.  Action  upon  a  promissory 
note.  The  facts  were  as  follows :  When  the  note  was  presented 
to  the  referee,  on  the  trial,  it  was  in  these  words  and  figures,  viz. : 

"$200.  Ninety  days  after  date,  for  value  received,  I  promise  to 
pay  to  the  order  of  Qrigen  Smith  two  hundred  dollars,  at  the  office 
of  W.  C.  Curry  &  Co.,  Erie7~Fa.  (Signed) 

"Westfield,  June  22,  1859."  "W.   H.  Hungerford, 

"Alfred  Hall." 

(Indorsed)     "Origen  Smith." 

But  when  the  note  was  indorsed  by  Smith,  the  name  W.  H. 
Hungerford  was  not  signed  to  it ;  and  the  words,  "Office  of  W.  C. 
Curry  &  Co."  were  not  in  it.  A  blank  was  left  for  the  insertion  of 
the  place  of  payment ;  and  the  referee  found  that  Smith  authorized 
Hall  to  fill  it  in  the  manner  he  did,  with  the  words,  "office  of  W.  C. 
Curry  &  Co."  Hall  delivered  the  note  to  the  plaintiffs  in  exchange 
for__goods  they  sold  and  delivered  to  him  and  Hungerford  at  or 
about  the  day  ofjts  date.  Afterward,  and  before  the  note  became 
due,  Hungerford,  at  the  request  of  the  plaintiffs,  subscribed  his 
name  to  the  same,  for  the  purpose  of  adding  the  security  of  his 
name  with  that  of  Hall  to  the  plaintiffs,  and  without  any  other  in- 
tent, and  without  the  knowledge_-©r  consent  of  the  defendant,  Smith. 
Smith  was~The  only  party  to  the  note  who  defended  the  action. 

The  referee  decided  that  the  plaintiffs  were  entitled  to  recover 
the  amount  of  the  note.     After  judgment  in  their  favor,  Smith  ap- 
pealed to  the  court  at  general  term  in  the  eighth  district,  where  the 
judgment  wras  reversed,  and  a  new  trial  ordered,  costs  to  abide  the 
24— De  Witt. 


370 


SURETYSHIP   DEFENSES 


event.    The  plaintiffs  appealed  to  this  court  from  the  order  grant- 
ing a  new  trial.    The  case  was  submitted  on  printed  briefs. 

Emott,  J. :  The  question  of  the  manner  or  effect  of  the  in- 
sertion of  the  place  of  payment  is  not  before  us.  The  referee  has 
found,  as  a  fact,  that  Smith  indorsed  the  note,  having  no  place  of 
payment  stated  in  it,  and  that  it  was  to  be  filled  up  with  the  name 
of  a  bank  in  Erie,  Pa.,  and  it  was  so  filled  up  with  the  name  of  a 
banking  house  at  that  place.  There  is  no  exception  to  this  finding, 
and  it  disposes  of  the  objection  that  the  place  of  payment  was  in- 
serted in  the  note  without  authority.  So  also  the  question  of  no- 
tice of  non-payment  of  the  note,  if  it  was  open  to  the  defendant 
upon  the  present  answer,  is  disposed  of  in  the  same  way. 

The  main  question  in  the  case  is  the  effect  upon  the  indorser's 
liability  of  the  addition  of  Hungerford's  name  to  the  note.  It  is 
certainly  the  result  of  the  later  authorities  that  the  addition  of  an- 
other maker  to  a  note  made  by  one  or  more  parties  is  a  material 
alteration  of  the  contract.  Instead  of  being  the  several  or  the  joint 
obligation  of  the  original  party  or  parties,  it  becomes  the  joint  or 
joint  and  several  undertaking  of  different  contractors.  It  is  not 
,  material  whether  the  change  be  prejudicial  or  the  contrary:  it  is 
*  sufficient  that  it  is  material.  (Parsons  on  Bills  and  Notes,  Vol. 
2,  p.  556 ;  Gardner  v.  Walsh,  5  El.  &  B.  82.)  In  the  case  of  Chap- 
pell  v.  Spencer  (23  Barb.  584),  the  doctrine  was  applied  in  its 
strictest  form,  to  vitiate  a  negotiable  note  whose  holder  had  added 
his  name  as  joint  maker,  instead  of  indorsing  it,  upon  negotiating 
and  obtaining  the  money  upon  it. 

There  is  a  difference  between  the  present  case  and  these,  how- 
ever, which  must  not  be  lost  sight  of.  The  referee  finds  in  this 
case  that  the  note  was  transferred  to  the  plaintiff  for  goods  sold, 
in  its  original  condition,  as  the  note  of  Hall,  indorsed  by  Smith, 
and  as  declared  upon  in  the  complaint.  Afterward  Hungerford,| 
at  the  request  of  the  plaintiffs,  for  the  purpose  of  adding  the  secur- 
ity of  his  name,  subscribed  his  name  to  the  note.  This  made  no 
alteration  of  the  terms  of  the  contract,  of  course,  as  to  the  amount, | 
or  time  or  place  of  payment.  It  was  not  adding  a  joint  maker,  be- 
cause the  note  had  been  made  and  negotiated.  It  was  subscribing 
to  become  security  upon  a  note  already  made  and  negotiated.  Hun- 
ger ford  was  not  named  in  the  original  contract,  and  was  not  a  party 
to  it.  He  made  a  new  contract  with  the  holders  of  the  note,  as 
security  for  the  maker,  after  the  contract  of  the  maker  was  com- 
pleted. I  do  not  see  how  he  could  become  a  maker  of  a  note  al-l 
ready  made  and  delivered.  If  he  could  be  held  at  all,  I  think,  it/ 
must  have  been  by  treating  him  as  a  guarantor.  If  this  were  so, 
the  case  is  out  of  the  rule ;  for  a  guaranty  of  a  note  is  not  an  al- 
teration of  it,  or  of  the  maker's  contract  on  it.  I  therefore  disagree 
with  the  conclusion  of  the  Supreme  Court  on  this  point. 


7> 


I^JL^AA* 


CHANGE    OF    PARTIES  371 


I  am  led  to  the  conclusion  that  the  order  for  a  new  trial  should 
be  reversed. 

Denio,  Ch.  J.,  Davies,  Wright  and  Selden,  JJ.,  concurred,  with- 
out passing  upon  the  question  as  to  the  character  of  Hungerford's 
liability. 

Balcom,  T.  (dissenting)  :  The  Supreme  Court  made  the  order, 
granting  a  new  trial,  on  the  ground  that  the  defendant,  Smith, 
was  discharged,  as  indorser  of  the  note,  by  reason  of  Hunger- 
ford  subsequently  signing  the  same  as  maker,  without  his  knowl- 
edge or  consent. 

It  is  laid  down  in  Chitty  on  Bills  (Spring  ed.  1854,  p.  215),  that, 
"after  a  promissory  note  has  been  made  by  one  person,  the  name 
of  another  can  not  be  added  thereto  as  surety,  unless  by  indorse- 
ment, because  his  becoming  a  joint  maker  would  be  making  a  new 
contract."  The  only  authority  cited  to  sustain  this  doctrine  is  the 
case  of  Clerk  v.  Blackstock,  which  was  decided  in  1816,  and  re- 
ported in  1  Holt  N.  P.  Rep.  474.  The  note  in  that  case  was  orig- 
inally signed  by  Jackson,  to  whom  the  money,  mentioned  in  it,  was 
lent;  and  Clerk  afterward  required  some  new  security  from  Jack- 
son, in  consequence  of  which  Blackstock's  name  was  added  to  it 
as  a  surety.  Bayley,  J.,  said :  "I  think  this  note  may  be  con- 
sidered as  a  joint  and  several  note.  The  letter  I  applied  to  each 
severally.  Lord  Kenyon  has  ruled  so.  With  respect  to  the  other 
objection,  if  it  were  part  of  the  bargain  between  Clerk  and  Jack- 
son, that  Blackstock  should  sign  the  note  as  principal,  he  might 
sign  it  at  any  time  subsequent  to  Jackson's  signature.  But  if  it 
was  no  part  of  the  original  bargain,  and  Blackstock  came  in,  upon 
an  afterthought,  as  surety  merely,  the  note  will  not  be  binding 
without  an  additional  stamp." 

In  Byles  on  Bills  of  Exchange  (published  in  1829)  the  rule  is 
stated  as  follows:  "If  a  promissory  note  be  signed  by  A  and  sub- 
sequently by  B,  as  surety  for  A,  whilst  the  note  is  in  the  hands  of 
the  payee,  it  will  be  void,  unless  the  signature  of  B  is  in  pursuance 
of  a  previous  agreement,  at  the  time  of  making  the  note."  (Byles 
on  Bills,  Law  Library,  4th  series,  Vol.  36,  p.  247.)  The  case  of 
Clerk  v.  Blackstock  (supra)  is  cited  by  Byles,  and  also  Ex  parte 
White  (2  Dear,  and  Chitt.,  334),  as  authority  for  this  rule. 

The  case  of  Catton  v.  Simpson  (8  Adol.  &  Ellis,  136)  was  de- 
cided in  1838,  wherein  Lord  Denman,  Ch.  J.,  held  that  a  third  per- 
son signing  his  name,  as  surety  to  a  note,  after  it  had  been  nego- 
tiated, without  any  understanding  or  arrangement  with  the  makers, 
was  not  an  alteration  of  the  note,  but'  merely  an  addition,  which 
did  not  annul  the  original  liability  of  the  makers.  But  that  case 
was  overruled  by  the  Court  of  Queen's  Bench,  in  1855,  in  the  case 
of  Gardner  v.  Walsh  (32  Eng.  L.  &  E.  162),  wherein  it  was  ex- 
pressly adjudged  that  the  maker  of  a  note  is  discharged  from  all 


372 


SURETYSHIP   DEFENSES 


liability  to  pay  it,  if  the  holder,  without  his  knowledge  or  consent, 
procures  another  person  to  sign  it  as  a  joint  maker.  The  court 
said :  "We  conceive  that  he  (the  original  maker)  is  discharged 
from  his  liability  if  the  altered  instrument,  supposing  it  to  be  gen- 
uine, would  operate  differently  from  the  original  instrument, 
whether  the  alteration  be  or  be  not  to  his  prejudice."  The  same 
rule  was  laid  down  by  the  Court  of  Appeals  of  Kentucky  (Bank  of 
Limestone  v.  Penrick,  5  Monroe  25),  as  early  as  1827,  and  it  was 
reiterated  by  that  court  in  1839,  in  Pulliam  v.  Withers  (8  Dana  98). 
It  was  adopted  by  the  Supreme  Court  of  this  state,  in  the  seventh 
district,  in  1857,  in  Chappell  v.  Spencer  (23  Barb.  584),  and  sus- 
tained by  a  very  able  opinion  delivered  by  Justice  Smith. 

The  same  doctrine  is  stated  in  Story  on  Promissory  Notes  (sec- 
tion 408a),  in  these  words:  "The  rule  is  that  the  maker  of  a  note 
is  discharged  by  any  subsequent  alteration,  wherever  the  altered  in- 
'strument  would  operate  differently  from  the  original,  whether  the 
alteration  be  or  be  not  to  the  maker's  prejudice.  Thus,  where  A 
signed  a  note  as  the  sole  surety  for  B,  and  afterward  the  payee  pro- 
cured C  to  sign,  as  additional  surety,  without  A's  knowledge  or  con- 
sent, this  was  held  to  discharge  A  from  all  liability  to  the  note." 
Edwards,  in  his  late  Treatise  on  Bills  and  Promissory  Notes,  as- 
serts the  same  doctrine.     (Edw.  on  Bills,  681.) 

The  Supreme  Court  of  Alabama  held  adversely  to  this  rule,  in 
1846,  in  the  case  of  The  Montgomery  Railroad  Company  v.  Hurst 
(9  Ala.  513).  But  that  case  can  not  be  followed.  There  is  too 
much  authority  against  the  rule  therein"  laid  down  to  warrant  its 
adoption  in  this  state,  whatever  we  might  think  of  it  as  an  original 
question. 

It  follows  that  this  court  must  hold,  that  if  the  holder  of  a  note, 
without  the  knowledge  or  consent  of  the  maker,  procures  a  third 
person  to  sign  it  as  maker  or  surety,  he  thereby  discharged  the  orig- 
inal maker  from  all  liability  thereon.  And  the  rule  is  undisputed, 
that  when  the  holder  of  a  note  discharged  the  maker  from  liability, 
without  the  knowledge  or  consent  of  the  indorser,  he  thereby  dis- 
charges the  latter  from  all  liability  on  the  note. 

The  foregoing  views  show  that  the  Supreme  Court  rightfully 
held  in  this  case  that  the  plaintiffs,  by  procuring  Hungerford  to 
sign  the  note,  a's  additional  surety,  or  maker,  without  the  knowl- 
edge or  consent  of  the  defendant,  Smith,  who  had  indorsed  it,  dis- 
charged the  latter  from  all  liability  thereon. 

The  order  of  the  Supreme  Court  granting  a  new  trial  must, 
therefore,  be  affirmed,  and  final  judgment  rendered  against  the 
plaintiffs  with  costs. 

Marvin  and  Rosekrans,  JJ.,  also  dissented. 

Order  reversed,  and  judgment  at  special  term  affirmed. 

See  also  Brownell  v.  Winnie,  29  N.  Y.  400,  86  Am.  Dec.  314. 


CHANGE    OF    PARTIES  373 


RICHARD  CUDWELL  GARDNER,  JAMES  SYKES,  AND 
JOHN  SYKES  GARDNER  v.  WALSH 

5  El.  &  Bl.  83  (1855). 

Count :  That  defendant  and  one  Elizabeth  Barton  and  one  Alice 
Clarke,  by  their  promissory  note  now  overdue,  jointly  and  sev- 
eraTHTpromised  to  pay  to  plaintiffs,  or  order,  £500. 

Plea,  amongst  others  :  "That  the  said  promissory  note,  at  the 
time  when  the  same  was  first  made  and  drawn,  was  intended  by 
the  defendant  to  be,  and  was  made  and  drawn  by,  the  said  Eliza- 
beth Barton  and  the  defendant  only;  and  that,  after  the  same  was 
^.  /so  made  and  drawn  by  the  said  Elizabeth  Barton  and  the  defendant 
(being  the  said  making  thereof  by  the  defendant  in  the  declaration 
;';  mentioned),  and  after  the  said  note  was  completed,  issued,  and  ne- 
i  gotiated,  that  is  to  say,  by  the  said  Elizabeth  Barton  and  the  de- 
fendant, the  plaintiffs,  without  the  consent  of  the  defendant,  caused 
the  same  to  be  added  to,  altered,  and  changed  in  a  material  part 
thereof,  and  in  a  material  point,  that  is  to  say,  by  causing  the  said 
\  Alice  Clarke  to  sign  the  same  and  to  become  and  be  a  joint  maker 
thereof."  Averment:  that  the  alteration  was  not  made  in  cor- 
rection of  any  mistake  originally  made  in  the  making  or  drawing 
of  the  note,  "nor  to  further  any  intention  of  the  said  parties,  or 
either  of  them,  existing  at  the  time  when  the  note  was  first  made 
by  the  defendant,  or  was  first  issued  or  negotiated."    Issue  thereon. 

The  other  pleas  led  to  issues  which  it  is  not  necessary  to  notice. 

On  the  trial,  before  Lord  Campbell,  C.  J.,  at  the  sittings  at  West- 
minster after  Michaelmas  Term,  1854,  plaintiffs  proved  the  hand- 
writing of  the  defendant  to  a  joint  anJ~severai~rTote  for  £500, 
signed  by  Elizabeth  Barton,  the  defendant,  and  Alice  Clarke,  and 
thus  made  a  prima  facie  case.  The  defendant  then  gave  evidence; 
and  plaintiffs  gave  evidence  in  reply.  On  the  whole  of  this  evidence 
taken  together  it  appeared  that  plaintiffs  were  merchants  at  Man- 
chester, and  had  business  transactions  with  Elizabeth  Barton.  They 
had  arranged  with  her  that  they  would  give  her  further  credit  if 
she  could  get  two  sureties  to  sign  with  her  a  promissory  note ;  and 
she  had  proposed  to  them  the  defendant  and  Alice  Clarke.  Eliza- 
beth Barton  proposed  to  defendant  to  sign  the  note  as  her  surety ; 
he  agreed  to  do  so,  and  accompanied  her  to  Manchester,  and  there, 
in  the  office  of  plaintiffs,  signed  the  note  along  with  Barton. 
Afterward  Clarke  also  signed^ the  note.  It  was  clearly  shown  that, 
at  the  time  the  defendant  signed  the  note,  Barton,  the  principal 
debtor,  was  a  party  to  the  arrangement  that  Clarke  was  to  sign 
it  as  an  additional  surety ;  but  it  was  left  in  doubt  on  the  evidence 
whether  the  defendant  was  aware  of  this  arrangement  or  not. 
The  learned  judge  directed  the  jury  that,  if  the  signature  of  Clarke 


374  SURETYSHIP   DEFENSES 

was  added  without  the  previous  assent  of  defendant,  the  plea  was 
made  out,  as  the  addition  of  her  signature  materially  altered  the 
note.  The  jury  found  for  the  defendant  on  the  issue  on  the  plea, 
and  for  the  plaintiffs  on  the  other  issues. 

Lord  Campbell,  C.  J.,  in  this  term  (May  24th),  delivered  judg- 
ment. 

In  this  case  we  are  all  of  opinion  that  the  rule  can  not  be  sup- 
ported on  the  ground  that  the  signing  of  the  note  by  Mrs.  Clarke 
did  not  amount  to  an  alteration  of  the  note  and  of  the  liability  of 
the  defendant  in  a  material  point.  Supposing  the  other  allegations 
of  the  plea  to  be  proved,  we  think  there  is  sufficient  evidence  that 
'the  plaintiffs,  without  the  consent  of  the  defendant,  caused  the  said 


ao 
pr 


note  to  be  added  to,  altered,  and  changed  in  a  material  part  thereof, 
and  in  a  material  point,  that  is  to  say  by  causing  the  said  Alice 
Clarke  to  sign  the  same."  If  after  the  note  was  a  perfect  instrument, 
according  to  the  intention  of  the  parties,  as  the  joint  and  several 

omissory  note  of  the  defendant  and  Elizabeth  Barton,  and  after 
it  had  been  "completed,  issued,  and  negotiated,"  the  plaintiffs,  with- 
out the  consent  of  the  defendant,  had  caused  it  to  be  signed  by  Alice 
Clarke  as  a  joint  and  several  maker,  along  with  the  defendant  and 
Elizabeth  Barton,  according  to  principle  and  authority  he  is  dis- 
charged from  his  liability  upon  it.  There  would  be  no  difficulty 
in  showing  that,  under  certain  circumstances  which  might  have 
supervened,  this  alteration  might  have  been  prejudicial  to  the  de- 
fendant. But  we  conceive  that  he  is  discharged  from  his  liability 
if  the  altered  instrument,  supposing  it  to  be  genuine,  would  op- 
erate differently  from  the  original  instrument,  whether  the  altera- 
tion be  or  be  not  to  his  prejudice.  If  a  promissory  note,  payable 
at  three  months  after  date,  were  altered  by  the  payee  to  six  months, 
or  if,  being  made  for  ilOO,  he  should  alter  it  to  £50,  we  conceive 
that  he  could  not  sue  the  maker  upon  it  after  the  alteration,  either 
in  its  altered  or  original  form.  The  alleged  maker  was  no  party 
to  a  note  at  three  months,  or  for  £50 ;  and  the  note  at  six  months . 
for  £100,  to  which  he  was  a  party,  is  vitiated  by  the  alteration. 

This  principle,  which  in  Pigot's  Case,  11  Rep.  26b,  was  estab- 
lished with  respect  to  deeds,  was  applied  to  negotiable  instruments 
in  Master  v.  Miller,  4  T.  R.  320  (affirmed  on  error  in  Exch.  Ch., 
2  H.  Bl.  141)  ;  and  (as  far  as  we  are  aware)  it  has,  with  one  ex- 
ception, been  uniformly  acted  upon  down  to  the  recent  case  of 
Burchfield  v.  Moore,  3  E.  &  B.  683  (E.  C.  L.  R.  Vol.  77). 

The  exception  is  Catton  v.  Simpson,  8  A.  &  E.  136  (E.  C.  L.  R. 
Vol.  35).  That  case  certainly -does'very  nearly  resemble  the  pres- 
ent. The  defendant  had,  as  surety,  signed  a  joint  and  promissory 
note  with  the  principal  debtor,  having  no  reason  to  suppose  that 
any  one  else  was  to  sign  it.  Afterward  the  payee,  without  the 
knowledge  of  the  defendant,  induced  another  person  to  sign  it, 
with  a  view  to  strengthen  the  security ;  and  the  court  held  that  the 


CHANGE    OF    PARTIES  37*5 

defendant  was  still  liable  upon  it.  But  the  decision  took  place 
merely  on  refusing  a  rule  to  show  cause  why  there  should  not  be  a 
new  trial.  It  seems  to  have  proceeded  on  the  ground  that,  as  the 
new  surety  could  not  be  liable  on  the  note  by  reason  of  the  stamp 
laws,  the  alteration  operated  nothing,  although  the  counsel  urged 
that  "a  note  with  an  altered  date  does  not  bind  any  one  to  the 
new  contract,  yet  the  old  contract  is  void."  The  judgment  of  the 
court  was,  without  further  reasons,  in  these  words :  "In  the  ab- 
sence of  all  authority,  we  shall  hold  that  this  was  not  an  alteration 
of  the  note,  but  merely  an  addition  which  had  no  effect."  With  sin- 
cere respect  for  the  learned  judges  who  concurred  in  this  decision, 
we  feel  bound  to  say  that,  in  our  opinion,  it  is  contrary  to  the  au- 
thorities, and  that  it  is  not  law. 

The  counsel  for  the  present  plaintiffs  ingeniously  argued  that  the 
defendant,  in  signing  the  promissory  note,  had  entered  into  two 
contracts,  one  separately,  and  another  jointly  with  Elizabeth  JCar- 
ton ;  that,  although  they  were  both  written  on  the  same  piece  of 
paper,  and  expressed  in  the  same  sentence,  they  might  be  treated 
as  if  they  had  been  written  on  separate  pieces  of  paper  respectively 
signed  by  the  defendant ;  and  that  the  separate  contract  on  which 
the  present  action  is  brought  is  not  at  all  affected  by  the  signature 
of  Alice  Clarke,  which  made  her  a  party  to  the  joint'  contract  en- 
tered into  by  the  defendant  along  with  Elizabeth  Barton.  But  we 
must  consider  that  [a  joint  and  several  promissory  note,  although  it  y 
contains  two  promises  in  the  alternative,  is  one  contract  and  one 
instrument,  and  that,  if  it  is  designedly  altered  in  any  part  by  the 
payee  so  as  to  alter  the  liability  of  the  makers,  it  is  entirely  viti- 
ated.. According  to  Pigot's  Case,  11  Rep.  26b,  if  the  party  to  a  deed 
makes  an  alteration  in  a  covenant  after  the  deed  is  executed,  not 
only  the  covenant,  but  the  whole  deed,  becomes  void. 

But,  although  we  entertain  no  doubt  upon  this  point,  we  do  not 
come  to  the  conclusion  that  the  rule  should  be  discharged.  Look- 
ing to  some  of  the  allegations  of  the  fifth  plea,  a  difficulty  arises 
'with  respect  to  the  construction  to  be  put  upon  them  and  the  evi- 
dence necessary  to  support  them.  We  therefore  think  the  proper 
course  will  be  to  make  the  rule  absolute  for  a  new  trial,  the  defend- 
ant being  confined  to  one  plea  addressed  to  the  alleged  vitiation  of 
the  note  by  the  signature  of  Alice  Clarke,  and  having  leave  to  amend 
that  plea  as  he  may  be  advised.  The  costs  of  the  first  trial,  after 
deducting  the  costs  of  the  issues  found  for  the  plaintiffs,  to  abide 
the  event  of  the  new  trial. 

Rule  accordingly. 


376 


SURETYSHIP   DEFENSES 


SHIPP'S  ADMR.  v.  SUGGETT'S  ADMR. 


45  Ky.  5  (1848). 

Judge  Simpson  delivered  the  opinion  of  the  court. 

This  suit,  by  petition  and  summons,  was  brought  on  a  note  of 
$1,050,  purporting  to  have  been  executed  by  William  S.  Sweatman, 
E.  P.  Suggett  and  Henry  Sweatman,  payable  to  Richard  W.  Shipp. 

Shipp,  the  payee,  and  Suggett,  one  of  the  payors,  having  died, 
the  suit  was  instituted  by  Shipp's  administrator  against  the  admin- 
istrator of  Suggett. 

.  The  defendant  plead  non  est  factum,  and  to  sustain  his  plea, 
relied  upon  two  grounds.  First,  that  his  intestate  had  not  executed 
the  note  sued  on.  Secondly,  if  he  had,  that  it  had  lost  its  obliga-\ 
tory  effect  as  his  act  and  deed,  by  having  the  name  of  Henry  Sweat- 
man added,  as  an  additional  obligor  without  his  consjmt.__after  the 
note  had  been  executed  and  delivered  by  William  S.  Sweatman 
and  the  defendant's  intestate. 

The  first  ground  relied  upon  to  sustain  the  plea,  presented  merely 
a  question  of  fact  for  the  determination  of  the  jury.  In  support 
of  the  second  ground,  it  was  proved  on  the  trial  that  the  name  of 
Henry  Sweatman  as  an  additional  obligor  was  placed  on  the  note 
subsequently  to  its.  execution  by  the  other  obligors,  and  at  a  dif- 
ferent time  and  place,  at  the  instance  of  Shipp,  to  whom  the  note 
was  given.  The  evidence,  in  relation  to  the  assent  of  the  first 
obligors  to  the  procurement  of  the  signature  of  Henry  Sweatman 
as  an  additional  obligor,  was  contradictory  and  inconclusive. 

The  court,  at  the  instance  of  the  counsel  for  the  plaintiff,  in- 
structed the  jury,  "that  if  they  found  from  the  evidence,  that  the 
signature  of  E.  P.  Suggett  to  the  note  sued  on  was  the  act  and  deed 
of  said  Suggett,  and  that  after  he  signed  and  delivered  said  note, 
Henry  Sweatman,  with  his  consent  or  approbation,  signed  the  same 
as  additional  security,  they  must  find  for  the  plaintiff." 

The  counsel  for  the  plaintiff  also  moved  for  the  following  in- 
struction, which  was  refused,  viz. :  "That  the  note  sued  on  being 
drawn  joint  and  several,  authorized  the  obligee  to  take  the  addi- 
tional security  of  Henry  Sweatman,  unless  E.  P.  Suggett  dissented 
to  it." 

A  verdict  having  been  returned  for  the  defendant,  and  a  motion 
for  a  new  trial  overruled,  a  judgment  was  rendered  in  bar  of  the 
plaintiff's  action,  to  reverse  which  this  writ  of  error  is  prosecuted. 

The  only  question  presented  of  any  importance  grows  out  of  the 
refusal  of  the  court  to  give  to  the  jury  the  foregoing  instruction, 
as  to  the  law  of  the  case. 

In  the  case  of  Bank  of  Limestone  v.  Penick  (5  Monroe  25)  it 
was  held,  that  the  addition  of  another  obligor,  and  the  insertion 


CHANGE    OF    PARTIES  377 


of  his  name  by  the  obligees  in  the  body  of  the  note  without  the 
assent  of  Penick,  destroyed  its  obligatory  effect  as  to  him. 

In  the  subsequent  cases  of  Pulliam,  etc.,  v.  Withers  (8  Dana  98) 
and  Lilly  v.  Evans  (3  B.  Monroe  417),  a  new  obligor  had  been 
added,  without  inserting  the  name  in  the  body  of  the  note ;  but  in 
each  case,  the  assent  of  the  first  obligors  to  the  execution  of  the 
note  by  the  last  one,  was  considered  as  sufficiently  established  by 
the  evidence,  and  the  effect  on  the  validity  of  the  note  as  to  the  first 
obligors,  which  would  be  produced  by  the  addition  of  another 
obligor,  without  their  assent,  express  or  implied,  was  left  unde- 
cided. 

It  is  contended  on  the  one  hand,  that  there  is  a  manifest  dis- 
tinction between  this  case  and  that  of  the  Bank  of  Limestone 
against  Pen'ick.  In  the  latter,  a  change  had  been  made  in  the  body 
of  the  note  by  the  insertion  of  the  name  of  the  additional  obligor, 
by  the  obligees,  which  act,  according  to  the  established  doctrines  of 
the  law,  destroyed  its  obligatory  effect  as  to  the  first  obligor.  In 
this  case,  on  the  contrary,  the  note  being  joint  and  several,  the  ad- 
dition of  another  obligor  did  not  change  its  original  import,  and 
the  instrument  is  not  really  altered  by  the  signature  of  an  additional 
obligor.  This  difference  between  the  cases  is  relied  upon  as  suffi- 
cient to  take  this  one  out  of  the  operation  of  the  technical  rule  of 
the  common  law,  which  had  been  applied  in  the  case  of  the  Bank 
of  Limestone  against  Penick,  a  rule  which,  in  the  language  of  the 
court  in  the  case  of  Pulliam,  etc.,  v.  Withers  (supra),  is  founded 
more  on  what  is  deemed  good  policy  than  substantial  justice. 

The  argument  on  the  other  side  is  that  there  is  no  substantial 
difference  between  the  cases ;  that  every  reason  that  can  be  given 
why  the  holder  of  a  note  should  not  have  the  right  to  obtain  an- 
other obligor,  and  insert  his  name  in  the  body  of  the  note,  applies 
with  equal  force  to  the  present  case.  The  addition  of  anothei^ 
obligor  changes  as  effectually  the  note  ancTTts  legal  identity,  as  if 
Ins  name  were  inserted  in  the  body  of  the  writing.  By  signing  he 
becomes  the  joint  obligor  with  those  whose  names  are  previously 
affixed.  The  number  of  the  parties,  the  ratio  of  contribution,  and 
the  character  and  description  of  the  instrument,  are  all  substantially 
varied  without  the  assent  of  the  previous  obligors.  They  may,  by 
the  altered  condition  of  the  instrument,  be  prejudicially  subjected 
to  a  change  of  jurisdiction,  in  the  event  of  any  litigation  arising 
in  reference  to  the  payment  of  the  debt,  or  any  other  controverted 
matter  in  relation  to  it  between  the  parties.  The  surety  in  the  note 
1  who  has  obtained  an  indemnity  may  have  it  jeopardized  by  the 
!  loss  of  identity,  produced  by  the  change  in  the  writing  which  evi- 
dences the  debt  for  which  he  was  liable,  when  the  indemnity  was 
obtained. 

It  is  evident  these  consequences  might  ensue,  if  the  payee  of  a 
note  had  the  privilege  of  adding  another  obligor  at  pleasure,  with- 


378 


SURETYSHIP   DEFENSES 


out  the  assent  of  those  who  had  previously  executed  it.  It  will 
impose  very  little  hardship  on  the  holder  of  a  note  or  bond,  to  re- 
quire him,  before  he  procures  a  new  obligor,  to  obtain  the  assent  f 
of  the  previous  obligors.  If  the  additional  name  tends  to  increase 
the  security  of  the  debt,  and  is  procured  for  that  purpose,  and  not 
with  a  view  to  prejudice  the  other  obligors,  or  to  obtain  some  un- 
due advantage,  their  assent  would  hardly  be  withheld,  and  might 
be  implied  from  very  slight  testimony,  unless  such  an  implication 
be  forbidden  by  the  form  of  the  instrument,  the  nature  of  the  trans^ 
action,  or  express  evidence  of  dissent. 

The  effect  of  alteration  in  a  material  part,  made  by  the  party  who 
holds  the  instrument,  is  to  make  void  the  writing  thus  altered. 
Now,  although  the  addition  of  another  obligor  to  a  joint  and  several 
obligation,  which  had  been  executed  by  a  plurality  of  persons,  does 
not  change  the  import  of  the  instrument;  yet  it  causes  it  to  speak, 
in  reference  to  the  number  of  parties  to  it,  a  different  language 
from  that  which  it  originally  spake,  and  in  this  respect  changes  its 
legal  effect  and  operation.  The  alteration,  therefore,  must  be 
deemed  material,  and  when  made  at  the  instance  of  £he  party  him- 
self who  holds  the  instrument,  without  the  assent,  either  express 
or  implied,  of  the  parties  previously  bound  by  it,  renders  the  in- 
strument, as  to  him,  utterly  void. 

Inasmuch,  therefore,  as  the  instruction  moved  by  the  counsel  for 
the  plaintiff,  imported  a  legal  right  on  the  part  of  the  obligee  to 
take  the  additional  security  of  Henry  Sweatman,  without  the  as- 
sent, either  express  or  implied,  of  E.  P.  Suggett,  it  was  properly 
refused  by  the  court  below. 

In  support  of  the  motion  for  a  new  trial,  the  plaintiff  filed  an  affi- 
davit, stating  that  a  witness  by  whom  he  would  prove  the  assent 
of  Suggett  to  the  execution  of  the  note  by  Henry  Sweatman,  be- 
came intoxicated,  and  thereby  stupefied  to  sucj/an  extent  that  his 
testimony  to  this  fact  was  virtually  lost  to  him  on  the  trial;  and 
that  he  was  wholly  unapprised  of  the  situation  of  the  witness  un- 
til he  was  called  and  sworn.  /" 

This  affidavit  is  insufficient  to  authorize  a  new  trial,  in  opposi- 
tion to  the  decision  of  the  court  below,  for  two  reasons :  First,  the 
bill  of  exceptions  shows  that  this  witness  was  examined  on  the 
trial.  His  condition,  therefore,  was  apparent  to  the  court,  and 
whether  or  not  the  plaintiff  sustained  any  injury  by  his  alleged  in- 
toxication, was  a  matter  about  which  the  circuit  court  that  wit- 
nessed the  whole  affair,  could  judge  much  better  than  this  court 
can  from  the  plaintiff's  affidavit  alone. 

Second,  the  correct  practice  in  such  a  case  is,  for  the  party  at 
once,  upon  the  discovery  of  the  cause,  during  the  progress  of  the 
trial,  which  operates  as_ajsurprise  on_jrirnxJ:o  move  a  continuance 
or  postponement  of  the  trial,  and  not  attempt  to  avail  himself  of 
the  chance  of  obtaining  a  verdict  on  the  evidence  he  has  been  able 


CHANGE    OF    PARTIES  379 

to  introduce,  and  if  he  should  fail,  then  to  apply  for  a  new  trial,  on 
the  ground  of  surprise.  To  tolerate  such  a  practice,  would  have  the 
effect  of  giving  to  the  party  surprised  an  unreasonable  and  an  un- 
fair advantage,  and  tend  to  an  unnecessary  and  improper  con- 
sumption of  the  time  of  the  court. 

Wherefore,  the  judgment  of  the  court  below  is  affirmed.    ' 

Accord:  Hall  v.  McHenry,  19  Iowa  521,  87  Am.  Dec.  451;  Wallace  v. 
Jewell,  21  Ohio_St.^t63,£  Am.  Rep.  48;  Hamilton  v.  Hooper,  46  Iowa  515,  26 
Am.  Repr"l6l. 

(yl»M>  *l  (X  0    r    '  •  •  I        _-_i_ 

(b)    Addition  of  New  Party  as  Surety 

j 
ALBERT  L.  WARD  v.  SAMUEL  HACKETT  ET  AL. 

30  Minn.  150,  14  N.  W .  578,  44  Am.  Rep.  187  (1883). 

Mitchell,  J.  :x  Defendant  Elwis  signed  a  negotiable  promis- 
sory note^as  surety~Tor  defendant  Hackett,  and  delivered  it  to 
Hackett,  upon  condition  that  he  should  not  deliver  it  to  plaintiff, 
the  payee,  until  he  procure  the  signature  of  one  Johnson  as  co- 
surety. Hackett  failed  to  get  Johnson's  signature,  but,  without  the 
knowledge  or  consent  of  Elwis,  got  defendant  Rice  to  sign  it,  and 
then  deliver  it  to  plaintiff,  who  took  it  in  the  ordinary  course  of 
business  for  a  valuable  consideration,  without  any  notice  of  the 
facts  hereinbefore  stated  and  now  set  up  by  way  of  defense.  El- 
wis now  claims  that  he  is  not  liable,  first,  because  the  note  was 
delivered  without  Johnson's  signature,  contrary  to  the  condition 
upon  which  he  signed  it  and  left  it  with  Hackett ;  second,  that  the 
addition  of  the  name_of  Rice  tojthe  note,  without  his  knowledge  or 
c^njeirtt_a:mounted  to  a  material  alteration  of  the  instrument,  which 
djscliargi3^htfflr~"These  two  questions  we  will  consider  in  the  order 
named. 

1.  The  form  of  the  note,  when  Elwis  signed  it  and  gave  it  to 
Hackett,  was  such  that  it  was  apparently  complete.  There  was 
nothing  on  the  face  of  the  paper  indicating  that  any  other  cosurety 
was  expected  to  become  a  party  to  the  instrument,  and  no  fact  was 
brought  to  the  knowledge  of  the  plaintiff,  before  he  accepted  the 
note,  calculated  to  put  him  on  his  guard,  or  which  should  have  in- 
duced inquiry.  Elwis  by  his  acts  clothed  Hackett  with  apparent 
authority  to  launch  the  note  as  it  then  was.  The  surety  having 
thus  placed  the  instrument,  perfect  on  its  face,  in  the  hands  of  the 
proper  person  to  pass  it  to  the  payee,  the  law  justly  holds  that,  as 
against  the  payee  who  takes  it  in  good   faith,   for  value,  without 

1  Statement  of  facts  omitted. 


380 


SURETYSHIP   DEFENSES 


any  notice  of  this  condition,  the  apparent  authority  with  which  the 
surety  has  clothed  his  principal  shall  be  regarded  as  the  real  au- 
thority, and  in  such  case  the  condition  shall  not  avail  the  surety. 
This  is  too  well  settled  to  require  discussion.  Brandt  on  Surety- 
ship, p.  354,  and  cases  cited. 

2.  The  second  point  is  more  important.  It  has  been  very  fully 
and  ably  argued  by  appellant,  but,  unfortunately  for  us,  the  re- 
spondent has  not  deemed  it  necessary  to  discuss  the  question  at  any 
considerable  length.  The  position  of  appellant  is  that  the  fact  of 
Hackett's  obtaining  the  name  of  another  surety  upon  the  note  with- 
out his  knowledge  or  consent,  although  done  before  the  note  was 
delivered  to  plaintiff,  amounted  to  a  material  alteration  of  the  in- 
strument, which  discharged  him,  even  although  plaintiff  had  no  no- 
tice of  the  facts  when  he  took  the  note.  If  this  be  the  law.  we  are 
satisfied  its  announcement  would  be  a  surprise  to  the  business  and 
commercial  world.  It  would  render  commercial  paper  a  very  un- 
certain and  unsafe  subject  with  which  to  deal.  But  we  have  care- 
fully examined  all  of  the  numerous  cases  cited  by  appellant,  and 
do  not  find  one  that  goes  far  enough  to  sustain  him.  Many  of 
these  cases  hold  that  a  material  alteration  of  a  note  made  by  one 
of  the  promisors  before  its  delivery,  without  the  knowledge  of  the 
other  promisor,  makes  the  note  void  as  against  such  other  prom- 
isor, although  the  payee  have  no  notice  of  the  alteration  when  he  I 
takes  the  note.  Such  is  doubtless  the  law.  But,  upon  examina- 
tion, these  will  all  be  found  to  be  cases  whereby  the  body  of. the 
note  or  the  contract  itself  was  changed,  as  by  alteration  of  the 
date,  rate  of  interest,  or  amount  of  the  note.  And  the  reason  given 
why,  in  such  cases,  the  party  is  discharged,  is  the  self-evident  one 
that  the  contract  is  no  longer  the  one  he  made.  Numerous  cases 
are  also  cited  to  the  effect  that  the  addition  of  a  new  party  to  a 
note,  without  the  consent  of  the  other  parties,  is  a  material  altera- 
tion of  the  instrument.  But  these  will  be  found  to  be  cases  where 
the  new  name  was  obtained  after  the  note  was  fully  issued  and  de- 
livered to  the  payee,  and  at  his  instance  or  with  his  knowledge. 
We  have  been  referred  to  no  case,  and  have  found  none,  going  so 
far  as  to  hold,  where  a  surety  signs  a  promissory  note  and  intrusts 
it  to  his  principal,  and  the  principal,  while  the  instrument  is  still 
inchoate  and  has  not  become  effectual  as  a  contract  by  delivery, 
procures  an  additional  signer,  that  the  cases  cited  might,  at  first' 
sight,  seem  to  favor  such  a  doctrine,  but,  upon  examination,  will  be 
found  not  to  sustain  it,  even  if  the  payee  knew,  when  he  took  the 
note,  the  circumstances  under  which  the  additional  signature  was  I 
obtained. 

The  case  of  Haskell  v.  Champion,  30  Mo.  136,  was  one  where, 
at  the  instance  of  the  payee,  the  names  of  new  principal  obligors 
were  substituted  in  place  of  the  original  one,  by  changing  the  in- 


CHANGE   OF    PARTIES  381 

dividual  signature  of  one  partner  into  the  firm  signature,  thus  at- 
tempting to  make  a  party  surety  for  persons  for  whom  he  had 
never  agreed  to  be  responsible. 

The  case  of  Hall  v.  McHenry,  19  Iowa  521,  contains  dicta  by 
some  of  the  judges  which  go  farther  than  any  decision  we  have 
found.  In  that  case  the  name  of  the  additional  surety  was  ob- 
tained before  delivery  of  the  note,  but  at  the  instance  and  for  the 
benefit  of  the  payee.  After  the  note  was  delivered,  the  payee  cut 
off  the  name  of  this  additional  surety  without  the  knowledge  or 
consent  of  the  first  surety.  Wright,  J.,  who  delivered  the  opinion 
of  the  court,  while  admitting  that  he  had  found  no  authority  to 
that  effect,  argues  that  thus  adding  a  new  surety,  even  before  de- 
livery of  the  note,  would  amount  to  a  material  alteration  of  the 
instrument,  which  would  discharge  the  original  surety,  provided  the 
payee  knew,  when  he  took  the  note,  of  the  circumstances  under  - 
which  the  additional  name  was  added.  He  then  states  that  the 
court  was  not  agreed  on  this  proposition,  and  then  proceeds  to  de- 
cide the  case  upon  another  point,  to  wit,  that  cutting  the  additional 
name  off  the  note  was  a  material  alteration,  which  discharged  the 
original  surety. 

The  rule  that  a  material  alteration  of  a  contract  avoids  it  had  its 
origin  largely  in  the  necessity  of  preserving  and  protecting  the  in- 
tegrity and  sanctity  of  contracts.  Properly  applied,  the  rule  is  a 
salutary  one.  But  the  general  sentiment  of  courts  now  is  that  the 
doctrine  had  been  extended  quite  far  enough,  and  that  formerly 
especially  in  England,  it  had  been  carried  too  far,  and  applied  to 
cases  not  within  the  mischief  intended  to  be  prevented.  There-—, 
fore,  the  (tendency  now  is,  if  not  to  restrict,  at  least  not  to  extendi- 
it  beyond  what  has  been  already  decided.  To  hold  that  the  obtain- 
ing of  an  additional  surety  to  a  note,  under  the  facts  of  the  case  at 
bar,  amounted  to  an  alteration  of  the  instrument  that  would  dis- 
charge Elwis,  would  in  our  judgment  be  harsh,  technical,  and  work 
injustice,  and  establish  a  doctrine  contrary  to  the  general  under- 
standing of  business  men,  which  ought  to  be  the  law  of  such  cases, 
and  is  the  only  just  basis  of  the  implied  contract  resulting  from 
the  facts.  In  dealing  with  commercial  paper,  complete  on  its  face, 
and  signed  by  several  parties,  we  apprehend  it  never  occurs  to  a 
business  man  that  it  is  incumbent  upon  him  to  inquire  of  each 
maker  whether  he  understood  when  he  signed  the  paper  just  what 
other  parties  were  to  sign  with  him,  or  whether  any  additional 
names  have  been  subsequently  added  without  his  knowledge  or 
consent.  To  require  any  such  thing  would  be  inconvenient,  with- 
out reason,  and  an  innovation  upon  business  usages.  The  idea  that 
when  a  person  signs  a  note  as  surety,  and  delivers  it  to  his  prin- 
cipal, no  other  surety  is  to  be  obtained,  and,  if  the  note  can  not  be 
negotiated  in  that  form  it  can  not  be  used  at  all,  unless  all  parties 


382  SURETYSHIP   DEFENSES 

consent  to  the  introduction  of  a  new  surety,  is,  we  apprehend, 
contrary  to  the  general  understanding  of  the  commercial  world. 
-  It  seems  to  us  that,[at_]eg,st  as  against  an  innocent  holder,  the 
principal  obligor,  to  whom  the  paper  has  been  uitrusted  by  the 
surety,  has  implied  authority  to  obtain  additional  sureties,  until  the 
note  is  launched  into  the  market  by  delivery  to  the  payee ;  and,  as  I 
already  remarked,  this  common  understanding  is  the  only  just  basis 
of  an  implied  contract  resulting  from  the  facts.  Courts  have,  in 
some  cases,  gone  so  far  in  holding  that  the  addition  of  a  new  name 
to  a  note,  under  certain  circumstances,  amounted  to  a  material  and 
unauthorized  alteration  of  the  instrument,  that  it  may  be  difficult 
to  state  the  principle  which  distinguishes  some  of  these  cases  from 
the  present,  nor  do  we  feel  compelled  to  attempt  to  do  so.  But 
whether  or  not  the  reason  we  have  suggested  be  the  correct  one,  i 
we  are  satisfied  that  neither  upon  principle  nor  authority  did  the 
obtaining  of  Rice  as  additional  surety  amount,  under  the  facts  of 
:  this  case,  to  an  alteration  of  the  instrument  such  as  to  release  El- 
wis.  As  Rice's  claim  to  be  discharged  is  entirely  predicated  upon 
lEe  "assumption  that  Elwis  was  released,  it  is  unnecessary  to  con- 
sider it  further. 
Order  affirmed. 

See  also  Graham  v.  Rush,  73  Iowa  451,  35  N.  \V.  518;  Holthouse  v.  State, 
49  Ind.  178. 


MILES  B.  MILLER  v.  HUGH  FINLEY,  JR.,  ET  AL.y 
26  Mich.  249,  12  Am.  Rep.  306  (1872). 

Campbell,  J. :     Miller  sued  below  upon  a  joint  and  several  prom- 
issory  note.     Both  defendants  pleaded  the  general  issue,  and  Tlugh 
Finley,  junior,  appended  Wilis  plea  an  affidavit  denying  the ' execu-" 
tion  of  the  note  by  himself.     Nojiotice  of  any  kind  was  filed  or 
s e r.ved  with  the  pleaT 

Upon  the  trial  the  defense  was  rested  upon  several  grounds.  It] 
was  claimed  that  Hugh  Finley,  senior,  signed  the  note  without  the 
consent  of  Hugh  Finley,  junior,  his  son,  who,  it  is  alleged,  refused! 
to  assent  to  having  him  sign,  and  after  the  note  had  been  delivered! 
as  the  sole  note  of  the  son.  It  was  further  claimed"  that  when  he 
signed  it,  lie  was  in  such  a  state  of  drunkenness,  procured  by  the 
original  payee,  that  he  was  not  responsible  for  his  acts.  It  was 
also  set  up  that  the  note  was  one  of  several  obtained  by  fraud,  as" 
the  price  of  a  worthless  patent,  for  a  horse-collar  fastener. 

Miller  claimed  as  a  bona  fide  holder.     Judgment  was  rendered 
for  defendants  below,  and  he  now  brings  error.     *     *     *i 

1  Part  of  opinion  as  to  sale  of  patent  right  as  a  consideration  omitted. 


CHANGE   OF    PARTIES  383 

It  is  also  claimed  by  plaintiff  in  error,  that  the  alteration  in  the 
note,  whereby  Hugh  Finley,  senior,  became  a  party  to  it  was  not, 
as  to  the  original  signer,  a  material  alteration.  There  is  no  doubt 
that  any  material  alteration  in  a  note,  without  the  consent  of  the 
party  responsible  on  it,  and  affected  by  it,  will  destroy  it  as  to  him. 
Wait  v.  Pomeroy,  20  Mich.  R.  425 ;  Holmes  v.  Trumper,  22  Mich. 
R.  427 ;  People  v.  Brown,  2  Doug.  R.  9.  And  there  can  be  no  ques- 
tion but  that  an  addition  to  the  number  of  signers  of  an  instrument , 
may  in  some  cases,  at  least,  affect  the  operation  of  it,  as  to  some 
or  all  of  those  who  have  already  signed. 

The  doctrine  is  settled  in  New  York,  that  procuring  the  signature 
of  a  party,  whose  name  was  not  originally  on  a  note,  is  not  neces- 
sarily material  as  to  the  first  signers.  In  Muir  v.  Demaree.  12 
Wend.  468,  where  holders,  in  order  to  get  a  note  discounted,  signed 
their  own  names  as  makers,  in  addition  to  the  rest — the  note  being 
joint  and  several — and  afterward  paid  it,  they  were  held  to  have 
lost  no  rights,  and  to  be  authorized  to  sue  it  themselves,  or  trans- 
fer it  to  others.  In  McCaughey  v.  Smith,  27  N.  Y.  39,  where  hold- 
ers, without  an  indorser's  knowledge  or  consent,  procured  a  second 
name  to  a  sole  note,  for  the  purpose  of  adding  to  their  security,  it  ... 
was  held  not  to  be  such  an  alteration  as  affected  the  indorser.  A 
similar  principle  was  recognized  in  Brownell  v.  Winnie,  29  N.  Y. 
400.  There  are  some  decisions  bearing  more  or  less  on  both  sides,  in  -" 
other  states.  Only  two  English  decisions  bearing  upon  the  question 
directly,  have  been  cited.  In  Catton  v.  Simpson,  8  Ad.  &  El.  136, 
it  was  held  that  an  additional  party  signing  without  a  new  stamp 
was  not  bound  by  his  signature,  and  that  the  alteration,  therefore, 
was  not  material.  In  that  case  the  original  note  was  signed  by  a 
principal  and  surety,  jointly  and  severally,  and  the  new  name  was 
procured  by  the  principal  for  an  extension  of  time.  The  origjnal. 
surety  paid  the  note,  and  sued  his  principal   for  the  money  paid 

rto  his  use.  The  principal  defended,  on  the  ground  that  the  payment 
was  voluntary,  because  the  surety  had  been  discharged  by  the  al- 
teration, and  had  no  right  to  pay  the  note ;  but  his  defense  was  re- 
jected. 

\  In  Gardner  v.  Walsh,  5  El.  &  Bl.  83,  a  principal  and  surety  made 
a  joint  and  several  promissory  note,  and  a  second  surety  was  added 
without  the  knowledge  or  consent  of  the  first.  A  several  action  was 
brought  against  the  first  surety,  who  was  held  discharged  by  the 
alteration ;  and  the  court  expressed  an  opinion  that  the  former  de- 
cision  was  not   law. 

In  the  recent  case  of  Aldous  v.  Cornwell,  L.  R.,  3  Q.  B.  573  ;  Cat- 
ton  v.  Simpson  is  cited  as  an  authority  on  the  point  that  an  altera- 
tion will  not  vitiate  unless  material ;  and  the  case  of  Gardner  v. 
Walsh  was  referred  to,  merely  to  say,  that  it  only  overruled  the 
former  case  on  the  question  whether  such  an  alteration  as  that 
passed  upon  was  material.    Aldous  v.  Cornwell  is  somewhat  pointed 


384  SURETYSHIP    DEFENSES 

in  condemning  the  early  decisions  which  paid  no  attention  to  the 
materiality  of  alterations.  And  the  doctrine  that  immaterial  al- 
terations should  not  be  regarded  is  too  well  based  on  good  sense  to 
be  overthrown. 

The  addition  of  a  surety  was  not,  in  either  of  those  cases,  held 
to  discharge  a  principal.  It  has  always  been  competent  for  a  per- 
son to  become  surety  by  signing  the  note  of  the  principal,  so  as  to 
become  a  joint  and  several  maker.  There  is  no  rule  which  re- 
quires that  a  contract  of  suretyship  must  be  contemporaneous  with 
_the  principal  obligation.  And  unless  the  principal's  liability  is  in 
some  way  affected  by  the  addition,  it  can  not  be  material. 

It  is  very  difficult  to  see  how  such  a  change  can  affect  him  in 
any  but  a  mere  technicality,  which  neither  changes,  increases,  nor 
diminishes  his  liability.  Where  there  is  no  surety,  the  principal 
is  liable  to  be  sued  severally,  and  made  to  pay  the  whole  debt,  if 
he  has  any  property  liable  to  execution.  His  liability  on  a  joint 
judgment  is  precisely  the  same.  His  property  is  primarily  liable, 
and  if  he  has  enough  to  pay  the  judgment,  and  it  is  paid  by  him, 
or  out  of  his  property,  he  has  no  further  concern  with  the  surety, 
as  he  can  have  no  right  of  contribution  for  his  own  debt.  The  fact 
that  he  may  not  pay,  does  not  in  any  way  affect  the  nature  or  ex- 
tent of  his  judgment  obligation.  A  surety  may,  perhaps,  in  some 
cases,  be  injuriously  affected  by  an  addition  to  the  number  of 
sureties,  where  there  is  more  than  one  already ;  as,  in  a  case  of  the 
bankruptcy  of  any  of  them,  his  obligation  to  pay  may  be  increased, 
and  his  right  of  contribution  against  cosureties  diminished,  by  the 
change.  But,  as  the  principal  is  bound  to  pay  the  whole  debt  with- 
out contribution,  his  liability  can  not  possibly  be  changed  by  the 
addition  of  sureties. 

We  think,  therefore,  that  the  original  maker  of  the  note  could 
not  complain  of  the  procurement  of  his  father's  signature,  and  that 
he  could  not  be  discharged  thereby.     *     *     *2 

The  judgment  must  be  reversed,  with  costs,  and  a  new  trial 
granted. 

The  other  justices  concurred. 

Cf.  Montgomery  R.  Co.  v.  Hurst,  9  Ala.  513;  Mersman  v.  Werges,  112  U. 
S.  139,  28  L.  ed.  641 ;  Stone  v.  White,  8  Gray  (Mass.)  589;  Ex  parte  Yates,  2 
DeG.  &  J.  191. 

Contra:  State  v.  Paxton,  65  Nebr.  110,  90  X.  W.  983;  Rhoades  v.  Leach,  93 
Iowa  337,  61  N.  W.  988,  57  Am.  St.  281. 


2  Part  of  opinion  with  reference  to  defense  of  drunkenness  omitted. 


CHANGE    OF    PARTIES  385 

(c)    Erasure  of  Name  of  Cosurety 

CASS  COUNTY  v.  AMERICAN  EXCHANGE  STATE  BANK. 

11  A'.  Dak.  238,  83  Ar.  W .  12  (1902). 

Morgan,  J. :  In  the  year  1897  the  county  auditor  of  Cass 
county  advertised  for  proposals  for  the  deposit  of  county  funds 
with  the  BanIcs~of  the  county,  pursuant  to  the  provisions  of  article 
8  o f "chapter "26"  of  the  Political  Code  of  1895.  The  American  Ex- 
change Bank  of  Buffalo,  in  said  county,  was  thereafter  designated 
by  the  county  commissioners  as  one  of  the  depositories  of  said 
county,  and  gave  its  bond  as  security  for  the  payment  to  the  county 
of  the  money  so  deposited,  and  to  render  a  true  account  of  such 
moneys  as  provided  by  said  chapter.  Such  bond-,  delivered  to  and 
approved  by  the  county  commissioners  of  said  county,  was  in  the 
penal  sum  of  $10,000.  The  American  Exchange  Bank  of  Buffalo 
failed  tqaccount  for  or  pay  over  to  said  county  the  sum  of 
$1,1897387  This  action  was  commenced  against  all  the  sureties  on 
said  bond.  The  persons  who  signed  said  bond  were  S.  E.  Bayley, 
Neil  McPhedran,  John  Moug,  W.  W.  Merriell,  W.  L.  Jones,  C.  A. 
Bullamore,  Reuben  Beard,  P.  T.  Peterson,  James  A.  Winslow,  and 
P.  Masterson,  and  they  signed  in  the  order  named.  The  bond  was 
circulated  for  signatures  by  one  James  A.  Winslow,  who  was  the 
president  of  the  American  Exchange  Bank,  the  principal  in  the 
bond.  The_bond  was__executed  by  each  of  the  sureties  without  any 
(stipulations  or  conditions  whatsoever,  except  such  conditions  as  are 
necessarily  implied  by  law.  No  one  of  the  sureties  entered  into 
any  express  agreement  or  condition  with  said  Winslow  as  to  the 
ersons  who  were  to  sign  said  bond,  and  there  were  no  express 
conditions  or  agreements  entered  into  between  any  of  the  sureties. 
While  the  bond  was  being  circulated  for  signatures  by  the  president 
of  the  bank,  and  after  Bullamore  had  signed  the  bond,  the  name 
of  Jones  was  erased  from  said  bond  by  Winslow  by  drawing  through 
the  name  of  said  \Y.  L.  Jones,  as  signed  to  the  bond,  and  to  his 
affklavit  of  justification,  a  red  ink  line.  This  erasure  was  made  in 
the  presence  of  and  at  the  suggestion  of  one  Stafford,  who  was  then  a 
member  of  the  board  of  county  commissioners.  Such  erasure  was 
made  without  the  knowledge  or  consent  of  the  four  sureties  who 
had  signed  before  Jones  signed,  and  without  the  knowledge  or  con- 
sent of  Bullamore,  who  had  signed  before  such  erasure,  and  neither 
of  such  sureties  has  since  ratified  the  erasure  of  such  name.  The 
sureties  signing  after  Bullamore  did  so  without  any  knowledge  of 
the  fact  that  Jones'  name  had  been  erased  after  Bullamore  had 
signed,  but  the  fact  that  Jones  had  signed  the  bond  and  that  his 
25 — De  Witt. 


V 


386  SURETYSHIP    DEFENSES 

name  had  been  erased  was  apparent  from  a  mere  inspection  of  the 
bond   when  they   signed   it.     Neither  the  name   of   Jones  nor   the 
names  of  any  of  the  sureties  had  been  inserted  in  the  body  of  the 
bond  at  the  time  that  the  name  of  Jones  was  erased,  and  the  names 
of  such  sureties  were  not  inserted  in  the  body  of  the  bond  until 
after  all  the  sureties  had  signed  it.     The  bond  was  then  presented 
to  the  county  commissioners   for  approval  and  approved.     All   of 
the  sureties  have  been  served  with  the  summons  in  this  action  ex- 
cept  the   surety   Winslow,   and   all  have  appeared   except   Bayley, 
.\icug,  and  Winslow.     The  defendants  Beard  and  Peterson  in  their 
answer  deny  that  they  ever  signed  the  bond  in  question,  or  author- 
ized any  one  to  sign  for  them.    The  other  defendants  answered,  al-\ 
leging,  in  effect,  that  the  bond  upon  which  suit  was  brought  was  notr&y 
their  contract,  nor  binding  upon  them,  by  reason  of  the  fact  of  the]// 
erasure  of  Jones'  name  from  said  bond  without  their  knowledge  or 
consent.     The  case  was  tried  before  a  jury.     At  the  close  of  the' 
I  taking  of   evidence  plaintiff's   counsel  moved   the   court    for   a   di- 
rected verdict  in  favor  of  the  plaintiff  for  the  reason  that  the  evi- 
dence shows,  without  contradiction,  that  they  signed  the  bond  in 
question,  together  with  Moug  and  Bayley.     This  motion  was  denied. 
Thereupon  special  interrogatories  were  submitted  to  the  jury,  and 
1      jury  answered,  in  reference  to  the  issues  raised  by  the  answers 
i    Beard,    Peterson,   and    Masterson.      These   answers    were   that 
rd  and  Peterson  signed  such  bond,  and  signed  it  after  the  name 
'  Jones  had  been  erased  therefrom;  that  the  names  of  the  sureties 
re  inserted  in  the  body  of  the  bond  after  all  the  sureties  had 
led  it,  and  that  Masterson  signed  the  bond  after  all  the  other 
su  .'ties  had  affixed  their  names  to  the  bond.     The  plaintiff  then 
ed  the  court   for  judgment,   on  the  special  verdict  and  undis- 
puted facts,  against  the  defendants  McPhedran,  Merriell,  Mnster- 
son,   Bullamore,    Beard   and   Peterson.      This   motion   was   denied. 
The  plaintiff  then  moved  for  judgment  against  all  the  defendants 
except  Bullamore.     This  motion  was  also  denied.     The  defendants 
then  moved  for  judgment  in  favor  of  all  the  defendants  interested 
in  the  trial  and  against  the  plaintiff,  dismissing  the  action.     This 
motion  was  granted.     Judgment  was  accordingly  entered,  and  the 
plaintiff  has  appealed  from  such  judgment  upon  a  settled  statement 
of  the  case. 

1  lie  assignments  of  error  raised  a  single  question  only,  viz.,  did 
the  facts  recited  justify  the  lower  court  in  ordering  judgment  of 
dismissal  in  favor  of  the  defendants?  The  facts  in  the  case  are 
now  mostly  stipulated  and  are  undisputed,  and  the  issues  raised 
by  the  answers  are  to  be  determined  as  questions  of  law  solely. 
"Flie  bond  in  question  was  authorized  by  the  provisions  of  section 
1941,  Rev.  Codes.  That  section  provides  that  the  depository  must 
furnish  a  bond,  with  not  less  than  five  freeholders  as  sureties,  in 
double  the  amount   to  be   deposited   with   such  bank;   and   a  pro- 


CHANGE    OF    PARTIES 


387 


vision  is  made  for  justification  of  sureties  in  arrest  and  bail  pro- 
ceedings as  follows,  so  far  as  material;  "they  (sureties)  must  each 
be  worth  the  amount  specified  in  the  order  of  arrest  *  *  *  but 
the  judge  or  justice  of  the  peace,  on  justification,  may  allow  more 
than  two  bail  to  justify  severally  in  amounts  less  than  that  expressed 
in  the  order,  if  the  whole  justification  is  equivalent  to  that  of  two 
sufficient  bail."  The  sureties  on  the  bond  in  question  did  not  justify 
by  appearing  before  a  court  or  judge  to  give  evidence  as  to  their 
property  and  qualifications  as  sureties,  but  each  surety  signed  and 
was  sworn  to  an  affidavit  stating  his  qualifications,  and  that  he  was 
worth  a  stated  sum  in  property  and  not  exempt  by  law  froni  sale 
or  execution,  and  over  and  above  debts  and  liabilities.  When  "jus- 
tification" is  mentioned  in  considering  this  case,  such  affidavits  ' 
are  referred  to,  and  not  an  appearance  before  a  magistrate  and 
giving  testimonv  as  to  qualifications.  The  sureties  on  this  bond, 
when  finally  approved,  had  justified  by  such  affidavits  in  the  ag- 
gregate sum  of  $24,000,  without  including  Bullamore  or  Jones. 

The  question  to  be  determined  upon  the  facts  stated  is,  are  any 
of  the  sureties  to  be  held  responsible  for  the  default  of  their  prin- 
cipal? If  so,  which  ones?  The  plaintiff  contends  that  they  are  all 
liable  except  Jones.  The  defendants  claim  that  all  are  exempt  from 
liability  by  virtue  of  the  erasure.  Jones  not  being  held,  is  Bulla- 
more to  be  held  liable,  inasmuch  as  he  signed  before  the  erasure, 
and'  did  not  consent  to  such  erasure  of  Jones'  name,  and  had  no 
knowledge  thereof  until  this  action  was  commenced?  He  signed, 
therefore,  upon  the  condition  that  all  who  had  signed  before  him 
would  share  equally  with  him  in  case  of  default  in  the  conditions  : 
of  the  bond,  and  that  he  could  hold  such  prior  signers  to  contribu- 
tion with  him  in  case  he  paid  or  was  compelled  to  pay  anything  on 
account  of  the  default  of  the  principal.  On  a  former  appeal  of 
this  same  case,  this  court  said:  "The  first  man  who  signed  the 
bond  signed  with  the  understanding  that  the  principal  would  pro- 
cure such  additional  sureties  as  might  be  necessary  to  make  the 
bond  comply  with  the  requirements  of  the  law.  Each  subsequent 
surety  signed  with  the  understanding  and  with  the  additional  un-  [ 
derstanding  that  the  particular  persons  whose  names  preceded  his  ■ 
as  sureties  would  be  liable  to  him  in  contribution,  should  he  be  re- 
quired to  pav  the  bond.  He  signed  reiving  upon  their  financial  re- 
sponsibility." 9  N.  D.  267,  83  N.  W.  12.  See  also  Hessell  v.  John- 
son (Mich.'),  30  N.  W.  209,  6  Am.  St.  334.  Before  determining 
whether  Bullamore  was  released,  under  the  facts  in  evidence,  it 
must  be  determined  whether  the  acts  of  Winslow,  as  agent  for  Bul- 
lamore for  the  delivery  of  the  bond  to  the  commissioners  for  ap- 
proval, was  binding  upon  Bullamore,  and  the  further  fact  whether 
the  county  commissioners  had  notice  of  the  fact  that  Bullamore  had 
signed  before  Jones'  name  was  erased,  or  had  notice  of  such  facts  as 
would  necessarily  put  them  upon  inquiry.    That  Winslow  was  the 


388  SURETYSHIP    DEFENSES 

agent  of  Bullamore  for  the  purpose  of  procuring  such  sureties  as 
would  make  the  bond  comply  with  the  law  and  secure  its  approval 
can  not  be  doubted.  His  agency  was  limited  to  those  acts.  He  was/^ 
not  vested  with  any  discretionary  or  general  powers,  and  could  not; 
bind  Bullamore  by  any  changes  in  the  bond  without  his  consent./ 
He  had  no  authority,  under  his  special  and  implied  agency,  to  sub-i 
stitute  other  signatures  for  those  that  were  there  when  Bullamor^ 
signed.  In  doing  so  he  exceeded  his  authority.  Although  Winslovi 
did  exceed  his  authority,  that  fact  does  not  necessarily  release  Bul- 
lamore from  liability  on  the  bond.  Bullamore  trusted  Winslow, 
;and  placed  it  in  his  power  to  impose  upon  him,  and  also  to  impose 
upon  the  commissioners.  If  no  one  else  connected  with  the  trans- 
action had  been  guilty  of  a  violation  of  duty,  then  Bullamore  should 
be  held  responsible  upon  the  bond.  If  the  commissioners  did  every- 
thing required  of  them  under  the  facts  of  which  they  had  actual 
or  constructive  notice,  then  Bullamore,  having  trusted  an  agent 
that  exceeded  his  authority,  to  his  prejudice,  should  be  the  onei 
that  should  suffer  for  his  and  his  agent's  delinquency.  Brandtj 
Sur.,  p.  60 ;  King  Co.  v.  Ferry  ( Wash.) ,  32  Pac.  538,  19  L.  R.  A.  500, 
'34  Am.  St.  880.  If  the  commissioners  had  knowledge  of  the  con- 
ditions under  which  Bullamore  signed  the  bond,  and  approved  such 
bond  with  such  knowledge,  then  they  acted  with  notice  of  the  fact 
that  Winslow  had  exceeded  his  authority.  In  such  case,  Bulla- 
more would  not  be  liable,  as  the  bond  approved  by  the  commission- 
ers was  not  the  same  bond  signed  by  him.  If  the  commissioners 
had  notice  of  facts  sufficient  to  put  them  on  inquiry  as  to  the  con- 
ditions or  circumstances  under  which  Jones'  name  was  erased,  and 
Bullamore  signed,  then  they  are  presumed  to  have  notice  of  all  the 
facts  which  the  carrying  on  of  such  inquiry  would  bring  to  their 
knowledge.  It  is  admitted  that  Jones'  name  was  erased  by  draw- 
ing a  line  through  it  with  red  ink,  and  that  his  signature  to  his  affi- 
davit of  justification  was  erased  in  the  same  way.  These  erasures 
were  plainly  discernible  by  the  most  casual  observation,  and  a  most 
cursory  examination  of  the  bond  could  not  have  failed  to  have  led 
to  a  discovery  of  the  erasure.  The  duty  devolved  on  the  commis- 
sioners to  make  such  examination,  in  the  interests  of  the  public,  as 
well  as  in  the  interests  of  the  sureties.  Our  conclusion  is  that  the 
erasure  of  Jones'  name,  as  it  appeared  on  the  bond,  was  such  a 
fact  as  put  them  on  inquiry  as  to  the  circumstances  under  which  it 
was  made,  j  Such  erasure  was  therefore  notice  to  them  that  Bulla- 
more signed  the  bond  before  Jones'  name  was  erased,  and  without 
the  consent  or  knowledge  of  Bullamore.  Consequently  it  was  no- 
tice to  them  that  Bullamore  was  absolved  from  all  liability  by  vir- 
tue of  having  signed  the  bond.  No  cases  have  been  cited,  and  we 
have  been  unable  to  find  any,  precisely  like  the  present  one,  upon 
the  faces,  so  far  as  the  question  of  implied  notice  is  concerned. 
The  cases  are  numerous  holding  that  the  erasure  of  the  signature 


CHANGE    OF    PARTIES  389 

and  .the erasure  of  the  name  in  the  body  of  the  bond  are  suffi- 
cient as  facts  to  put  the  obligee  upon  notice.  Fairbavcn  v.  Cow-' 
glTT^Wash.  686,  36  Pac.  1093  ;  Smith  v.  United  States,  2  Wall. 
219,  17  L.  ed.  788;  Hagler  v.  State  (Nebr.),  47  N.  W.  692,  28  Am. 
St.  514.  It  was  also  held  in  many  cases  that  the  erasure  of  the 
name  of  an  obligor  in  the  body  of  the  bond,  who  never  signed  the 
bond,  is  sufficient  to  put  the  approving  authorities  on  inquiry  con- 
cerning .the  facts  of  such  erasure.  Hessell  v.  Johnson  (  Mich.)  ,  30  N. 
W.  209,  6  Am.  St.  334 ;  King  Co.  v.  Ferry,  supra ;  Dair  v.  United 
States,  16  Wall.  1,  21  L.  ed.  491,  and  cases  there  cited.  In  Mc- 
Cramer  v.  Thompson,  21  Iowa  252 — an  action  on  a  promissory  note 
— the  court  held  that  the  fact  that  the  name  of  one  of  the  signers 
was  erased,  and  others  had  signed  thereafter,  was  a  fact  sufficient 
to  put  the  payee  on  inquiry  as  to  the  circumstances  under  which 
such  erasure  was  made,  and  the  subsequent  signers  were  released. 

,.Our  conclusion  is  that  Bullamore  can  not  be  held,  by  reason  of  the 
*^7  alteration  of  the  bond  before  delivery,  to  his  prejudice,  he  not  hav- 

I  ing  assented  to  such  alteration. 

4t-»ow~devolves  upon  us  to  determine  whether  the  sureties  Peter- 
son, Beard,  Winslow,  and  Masterson  are  entitled  to  be  absolved 
from  all  liability  by  reason  of  the  erasure  of  Jones'  name,  and  the 
consequent  nonliability  of  Bullamore.  It  will  be  remembered  that 
i these  lasj>namejdjjmr_eiies  signed  the  bond  after  Jones'  name  had 
been  erased^tfierefrom.     The  erasure  was  made  by  Winslow,  one 

rof  the  sureties  who  signed  it  thereafter.     The  fact  of  the  erasure 

I  of  Jones'  name  was  plainly  to  be  seen  by  them,  and  they  can  notj 
'.S  /be  heard  to  say  that  they  did  not  know  it.     They  claim  not  to  be 

I  liable  upon  the  hypothesis  or  contention  that  the  four  sureties  who 
signed    before   Jones    did   are    released,    and    that    in    consequence   , 
thereof  the  bond  is  not  a  statutory  bond,  with  Bullamore  and  the  * 
four  sureties  first  signing  released.     If  such  were  our  conclusion 
as  to  the  four  sureties  first  signing,  we  should,  without  doubt,  hold 
that  they  never  assumed  any  liability.     But  so  far  as  the  release  of  -J 
Bullamore  is  concerned,  these  subsequent  signers  can  not  claim  that 
they  are  released  in  consequence  of  that  fact.     They  signed  with 
knowledge  of  the  erasure  of  Jones'  name,  and  were  thereby  put    . 
upon  inquiry  as  to  whether  such  erasure  released  Bullamore  from 
liability.     It  will  be  presumed,  therefore,  that  they  signed  know- 
ing that  Bullamore  was  actually  released  from  all  liability,  and  must 
i   /be  deemed  to  have  consented  to  such  release,  and  are  now  estopped/" 
rfad  \  to  claim  their  release  by  virtue  of  such  erasure  or  "by  virtue  of  the/ 

/  consequent  release  of  Bullamore.  Smith  v.  United  States,  infra. 
We  meet  a  different  and  more  difficult  question  when  we  under- 
take to  determine  whether  the  four  sureties  first  signing  are  to  be 
held  liable  for  the  default  of  the  principal  in  the  bond.  Each  one 
of  these  four  sureties,  viz.,  Bayley,  McPhedran,  Moug,  and  Mer- 
riell,  signed  in  the  order  given,  without  any  express  condition  or 


390  SURETYSHIP    DEFENSES 

understanding  or  representation  as  to  subsequent  signers.  The 
number  of  subsequent  sureties  was  in  no  manner  alluded  to;  nor 
was  it  understood  or  agreed  or  represented  that  any  particular  per- 
son or  persons  were  to  sign ;  nor  was  anything  said  or  understood 
between  Winslow  and  these  sureties,  or  between  these  sureties 
among  themselves,  as  to  the  financial  character  or  responsibility  of 
subsequent  sureties,  or  the  sum  or  sums  for  which  they  should,  as  be- 
tween themselves,  undertake  to  bind  themselves  when  they  signed  the 
bond.  We  therefore  undertake  the  determination  of  this  question 
with  the  admitted  fact  that  these  four  sureties  signed  this  bond  with- 
out any  express  condition  or  understanding  or  knowledge  that  Jones 
was  to  be  a  surety  thereon.  They,  therefore,  signed  under  implied 
conditions  and  legal  presumptions  only,  and  what  were  these  ? 
Thev  had  a  right  to  infer  that  there  would  be  five  sureties  thereon, 
because  the  statute  provides  that  such  bonds  shall  be  signed  by  not 
less  than  five  freeholders,  and  it  also  appears  from  the  justifications 
that  they  assumed  that  enough  sureties  would  be  secured  to  bring 
the  aggregate  sums  for  which  the  sureties  justified  up  to  $20,000; 
that  sum  being  double  the  penalty  of  the  bond. ]  The  defendants 
contend  that  these  four  sureties  ''signed  with  the  implied  agreement 
that  each  person  who  should  subsequently  sign  should  be  liable  to 
him  in  contribution  unless  released  with  his  consent."  Xo  authori- 
ties are  cited  which  we  deem  to  be  fairly  in  point,  and  we  are  con- 
strained to  say  that  the  facts  of  the  case  at  bar  do  not,  in  our  opin  ■ 


ion,  warrant  the  enunciation  of  that  principle  in  the  broad  applica-i 
tion  contended  for.  In  this  case  we  must  not  lose  sight  of  the  fact! 
that  at  the  time  of  the  release  of  Jones  and  Bullamore  the  bond 
was  in  process  of  preparation,  and  was  in  no  sense  a  completed^ 
bond.  Xo  contract,  express  or  implied,  had  then  been  entered  into 
between  all  the  sureties  or  between  sureties  and  obligee.  The  bond 
was  not  then  in  condition  to  be  approved.  Winslow  thereafter  com- 
pleted it  by  procuring  four  more  sureties.  The  defendants  strongly 
insist  that  these  four  sureties  were  released,  or  rather,  never  bound, 
upon  the  principle  already  stated.  Such  contention  is  based  upon 
the  following  cases,  which  we  will  briefly  refer  to:  In  State  v. 
Allen  (Miss.),  10  So.  473,  30  Am.  St.  563,  the  sureties  signed  the 
bond  on  the  expressed  condition  that  the  bond  should  not  be  a 
completed  bond  until  enough  sureties  had  signed  and  justified  in 
sums  that  would  aggregate  the  penal  sum  of  the  bond.  After  a 
sufficient  number  had  signed  and  justified  in  such  sum  in  the  ag- 
gregate, the  name  of  one  surety  was  erased  without  the  consent  of 
any  of  the  other  sureties  who  had  signed.  It  was  held  that  the 
erasure  released  all  who  had  signed  the  bond  after  the  surety 
whose  name  was  erased  had  signed.  The  release  of  these  sureties 
reduced  the  aggregate  amount  of  the  justification  of  the  remaining 
sureties  on  the  bond  below  the  penal  sum  of  the  bond,  in  conse- 
quence of  which  their  liability  was  increased  beyond  the  amounts 


CHANGE    OF    PARTIES 


391 


contemplated  by  their  express  agreement  when  they  signed  the 
bond,  and  they  were  also  held  not  bound.  The  case  presents  a 
condition  of  actual  prejudice  to  the  remaining  sureties,  and  is  based 
upon  facts  not  at  all  parallel  with  the  facts  of  the  case  at  bar.  State 
v.  McGonigle  (Mo.  Sup.),  13  S.  W.  758,  8  L.  R.  A.  738,20  Am.  St. 
609,  is  a  case  based  upon  the  following  facts:  A  collector's  bond 
was  signed  by  the  requisite  number  of  sureties  and  presented  for 
approval.  While  before  the  approving  officer  one  of  the  sureties' 
names  was  erased,  and  another  one  procured.  The  erasure  of  this 
name  released  a  surety  who  had  subsequently  signed.  The  person 
subsequently  signing  in  the  place  of  the  surety  whose  name  was 
erased  had  no  knowledge  that  the  person  whose  name  had  been 
erased  had  ever  been  a  party  to  the  instrument,  and  the  court  held 
him  not  liable  upon  the  bond.  It  also  holds  that  all  prior  signers 
were  released,  because  the  bond  approved  Was  not  the  obligation 
entered  into  by  the  parties.  The  court  said  in  substance :  "As  pre- 
sented for  approval,  it  was  a  completed  bond,  and  expressed  the 
contract  of  the  parties  as  entered  into  by  them.  They  had  agreed 
to  be  jointly  and  severally  bound  with  those  whose  names  appeared 
on  the  bond  when  presented  for  approval,  but  did  not  'agree'  that 
the  name  of  Cain  should  be  substituted  for  that  of  Dolling."  The 
grounds  upon  which  the  decision  is  based  seem  to  be  that  the  altera- 
tion complained  of  was  made  after  the  contract  or  bond  was  a  com- 
pleted one.  In  State  v.  Churchill  (Ark.),  3  S.  W.  352,  the  facts  are 
that  the  bond  was  altered  by  the  erasure  of  a  name  after  all  the 
sureties  had  signed  it  and  it  had  become  a  completed  bond,  and  be- 
fore approval.  It  is  not  an  authority  that  the  erasure  of  a  name 
during  the  procuring  of  the  bond,  and  before  completion,  releases 
those  that  had  previously  signed  it.  In  Smith  v.  United  States,  2 
Wall.  219,  17  L.  ed.  788,  the  defendant  signed  the  bond  at  the  same 
time  or  after  the  person  whose  name  was  erased  without  the  knowl- 
edge or  consent  of  the  defendant.  The  court  held  the  defendant 
not  bound  to  respond  in  damages  on  account  of  the  breach  in  the 
conditions  of  the  bond.  The  rule,  as  stated  in  that  case,  is  as  fol- 
lows: "Any  variation  in  an  agreement  to  which  the  surety  has 
subscribed,  which  is  made  without  the  surety's  knowledge  or  con- 
sent, and  which  may  prejudice  him,  or  which  may  amount  to  the 
substitution  of  a  new  agreement  for  the  one  he  subscribed,  will 
discharge  the  surety."  In  State  v.  Craig  (Iowa),  12  N.  W.  301, 
the  following  are  the  facts :  A  bond  was  executed  by  eleven  sure- 
ties for  the  faithful  performance  of  the  duties  devolving  upon 
Craig  as  warden  of  the  penitentiary.  One  George  G.  Smith  signed 
the  bond  as  surety  after  seven  sureties  had  signed  it.  After  Smith 
signed,  three  others  signed  as  sureties  while  Smith's  name  remained 
thereon.  After  all  the  sureties  had  signed  the  bond,  and  before  it 
was  offered  for  approval,  the  name  of  Smith  was  erased  without 
the  consent  of  any  of  the  sureties.     The  court  held  the  sureties 


"392  SURETYSHIP    DEFENSES 

signing  before  and  after  Smith  released.  The  court  said  :  "But  the 
bond  had  been  put  in  circulation  for  the  purpose  of  obtaining  such 
number  of  signatures  as  Craig  deemed  necessary,  to  secure  its  ap- 
proval. We  may  assume  that  the  sureties  in  question  signed  with 
the  understanding  that  that  number  would  be  obtained,  and  it  could 
not  have  been  understood  that  that  number  was  to  be  obtained  in  such 
a  way  that  a  portion  of  them  could  not  be  held.  *  *  *  Their  real 
contract  was  expressed  by  the  bond  as  it  stood  when  all  the  signa- 
tures had  been  obtained,  and  before  the  erasure."  The  court  held 
that  the  bond  was  a  completed  bond,  so  far  as  the  contract  of  the 
sureties  was  concerned,  at  the  time  of  the  erasure,  and  that  it  was 
prejudicial  to  the  sureties  who  signed  before  Smith  to  erase  the 
name  of  one  surety,  thereby  releasing  three  other  sureties  that  had 
signed  after  Smith.  The  facts  of  the  case  at  bar  are  not. at  all 
parallel  with  that  case.  In  this  case  the  bond  was  not  completed 
when  the  erasure  was  made.  Xo  contract  had  been  entered  into 
1  between  the  sureties.  In  the  absence  of  express  agreement,  we 
know  of  no  right  that  the  first  signers  of  a  bond  have  to  insist  that 
a  subsequent  signer  of  the  bond  can  not  be  released  when  such  bond 
is,  after  such  release,  made  to  comply  with  the  statute,  and  all  im- 
plied conditions  are  complied  with,  without  any  possible  prejudice 
to  those  first  signing.  In  the  Craig  case  can  it  be  said  that  the  de- 
cision would  have  been  the  same  had  the  name  of  Smith  been 
erased  before  the  completion  of  the  bond  at  the  time  and  under 
the  circumstances  under  which  the  name  of  Jones  was  erased  in 
the  case  at  bar?  We  think  not.  Without  adopting  the  rule  an- 
nounced in  the  Craig  case,  but  measuring  for  purposes  of  argu- 
ment, the  facts  of  the  case  at  bar  with  the  rule  announced  in  that 
case,  the  sureties  first  signing  would  not  be  entitled  to  the  judgment 
obtained  by  them  in  this  case.  At  the  time  of  the  erasure,  Winslow 
did  not  consider  the  bond  satisfactory,  as  he  then  intended  to  pro- 
cure two  more  sureties.  If  the  sureties  first  signing  in  this  case,  as  in 
the  Craig  case,  assumed  that  a  sufficient  number  of  sureties  would  be 
procured  to  satisfy  Winslow  and  render  the  bond  approvable,  the 
bond,  as  finally  completed,  complied  with  that  assumption.  Neither 
the  Craig  case  nor  any  of  the  cases  cited  come  within  the  facts  of 
this  case.  In  this  case  the  relation  of  co-obligors  had  not  come  into 
effect  between  the  persons  who  had  signed  before  Jones  did,  either 
by  express  agreement  or  by  implication  of  law.  As  to  such  signers 
there  does  not  exist  in  the  case  a  semblance  of  prejudice,  either  as 
a  matter  of  fact  or  as  a  matter  of  law.  The  contention  that  these 
sureties  are  not  bound  under  such  a  state  of  facts  seems  to  us  to 
be  unwarranted  as  a  matter  of  justice  or  principle,  and  can  not 
be  sustained  by  authority. 

The  judgment  is  reversed  and  the  trial  court  is  directed  to  order 
judgment  against  all  the  respondents  except  Bullamore.  All  con- 
cur. 


ALTERATION  393 


V    A/. 


SECTION  3.   ALTERATION  BY  CHANGE  IN  OBLIGA- 
TIONS OF  PRINCIPAL 

(a)    Contracts  of  Employment 

R.  JAMES  MORRISON  ET  AL.  v.  CHARLES  T.  ARONS"' 

ET  AL. 

65  Minn.  321,  68  N.  W.  33  (1896). 

Action  in  the  district  court  for  Ramsey  county.      The  case  was 
tried   before   Kelly,  J.,   who   ordered   judgment  against   defendant 
A  ions  for  $801.43,  and  against  defendants  Williams  and  Hall  for 
$559.50,  with  interest.     From  an  order  denying  a  motion  for  a  new  j 
trial  defendants  Williams  and  Hall  appealed.     Reversed. 

Collins,  J.:  Plaintiffs  entered  into  business  as  copartners,  and 
employed  defendant  Arons  as  general  manager,  salesman,  and  col- 
lector.-  According  to  the  written  contract,  the  employment  was  to 
continue  as  long  as  mutually  agreeable.  Arons  was  to  receive  as 
compensation  for  his  services  a  sum  equal  to  one-half  the  net  profits 
of  the  business,  and  these  profits  were  to  be  ascertained  as  follows : 

"During  the  existence  of  the  employment  of  said  party  of  the  x 
second  part,  once  each  month,  commencing  with  December  1,  1892, 
a  just  and  true  inventory  of  the  assets  and  liabilities  of  said  firm 
shall  be  taken,  and  all  accounts  which  are  considered  bad  shall  be 
charged  to  profit  and  loss,  and  from  the  residue  of  the  accounts 
due  said  firm  shall  be  deducted  five  per  cent,  of  the  aggregate  ; 
amount  thereof  as  a  reserve  to  cover  bad  debts,  and  the  excess  of 
the  assets  over  the  liabilities  and  the  capital  stock  of  said  firm  shall 
be  determined  and  agreed  upon  as  the  net  profits  of  said  business, 
and  a  sum  equal  to  one-half  of  such  excess  shall  then  and  there 
be  credited  to  said  party  of  the  second  part  as  and  for  his  com- 
pensation, and  be  considered  an  expense  of  said  business.  That 
when  the  relation  between  said  firm  and  said  party  of  the  second  > 
part  is  extinguished,  then  the  actual  amount  of  profit  or  loss,  as 
the  case  may  be,  of  the  business  of  said  firm,  shall  be  determined, 
and,  if  there  has  been  a  net  profit,  a  sum  equal  to  one-half  thereof 
shall  be  allowed  said  party  of  the  second  part,  and  any  errors  in 
estimating  the  net  profits  at  the  previous  stated  periods  shall  then 
and  there  forthwith  repay  the  same ;  and,  if  there  is  any  amount 
due  him  on  account  of  his  compensation,  it  shall  then  and  there 
forthwith  be  paid  him." 

Arons,  as  principal,  and  defendants  Williams  and  Hall,  as  sure- 
ties, entered  into  a  bond,  in  which  plaintiffs  were  obligees,  which, 
after  reciting  that  Arons  was  about  to  enter  plaintiffs'  employ  as 

■ 


394  SURETYSHIP    DEFENSES 

general  manager,  salesman,  and  collector,  provided,  and  was  con- 
ditioned, that : 

"If  the  said  Charles  T.  Arons  shall  faithfully  and  honestly  per- 
form all  of  the  duties  of  his  said  employment,  and  shall  keep  just 
and  true  accounts  of  all  moneys  received  and  expended  and  all 
property  bought  and  sold  for  or  on  account  of  said  firm  by  him 
or  under  his  direction,  and  shall  faithfully  and  fully,  and  as  often 
as  required,  account  for  and  pay  over  to  said  firm  any  and  all 
moneys  belonging  thereto  collected  or  received  by  him,  or  which 
in  any  manner  come  into  his  hands  in  the  course  of  his  employ- 
ment by  said  firm;  and  shall  forthwith  and  on  demand  repay  to 
said  firm  any  and  all  moneys  he  shall  have  withdrawn  therefrom 
for  his  own  use  in  excess  of  the  compensation  due  him  for  his 
services  under  the  terms  of  this  agreement  with  said  firm  in  that 
behalf  (whether  such  moneys  shall  have  been  so  withdrawn  with 
the  consent  of  said  firm  or  otherwise),  as  often  as  it  shall  be  de- 
termined that  such  overdraft  has  been  made,  then  the  above  obli- 
gation to  be  void ;  otherwise  to  remain  in  full  force  and  virtue." 

This  action  was  brought  to  recover  an  aniomi.t_£finoney_saicl 
to  be  due  on  the  bond,  and  the_tri.aLwas  by  the  court,  JNIo  evidence 
was  introduced  tending  to  show  anyother  settlement  or  accounting 
than  that  had  when  Arons'  term  of  employment  ended.  In  fact, 
plaintiffs  admitted  that  they  never  ascertained,  and  could  not,  at 
the  time  of  the  trial,  ascertain,  what  the  respective  monthly  profits 
of  the  business  had  been.  At  the  conclusion  of  the  plaintiffs'  case 
and  again  at  the  conclusion  of  the  entire  case,  the  defendant  sure- 
ties moved  the  court  to  dismiss  the  same  as  to  them  upon  the  ground 
that,  as  it  affirmatively  appeared  from  the  evidence  and  admissions 
that  no  monthly  statements  or  accounting  had  been  had  as  provided 
for  in  the  contract  of  employment,  the  sureties  upon  the  bond  had 
been  released  from  liability.  These  motions  were  denied,  and  the 
court  made  its  findings  of  fact  and  conclusions  of  law  ordering 
judgment  in  plaintiffs'  favor. 

The  court  found  the  allegation  in  the  complaint  that  no  settle- 
ment or  accounting  was  had  between  the  parties  until  after  Arons' 
employment  ceased,  to  be  true.  We  agree  with  the  court  below 
in  its  construction  of  the  contract,  but  we  can  not  concur  in  its 
holding  that  the  sureties  were  not  discharged  by  the  failure  and 
omission  to  have  monthly  accountings  and  settlements  between 
Arons  and  plaintiffs.  The  former  was  to  have  advanced  to  him 
$100  each  month  for  personal  expenses  and  on  account  of  his  com- 
pensation under  an  agreement  that,  if  this  amount,  with  other  sums 
of  money  which  came  into  his  possession,  exceeded  one-half  of  the 
net  profits  of  the  business,  the  excess  should  be  promptly  refunded. 
What  the  profits  were,  and  the  sum  due  to  plaintiffs,  if  anything, 
were  to  be  provisionally  ascertained  each  month ;  and,  had  this  been 
done,  it  is  quite  certain  that  plaintiffs  would  have  discovered  be- 


Vt^Jis*        /9~^> 


ALTERATION  395 

fore  the  expiration  of  thirteen  months  that  the  business  was  not 
profitable,  while  Arons  would  have  learned  that  he  was  far  from 
earning  a  living  out  of  it.  The  natural  result  would  have  been  for 
both  parties  to  terminate  their  contract  relation,  and  avoid  further 
loss.  It  is  evident  that  there  would  be  much  less  hesitation  on  the 
part  of  a  person  called  upon  to  become  a  surety  upon  a  bond  given 
for  the  faithful  performance  of  a  contract  with  such  conditions 
than  if  the  real  situation  was  not  to  be  ascertained  for  months. 
The  condition  in  the  employment  contract  whereby  monthly  ac- 
countings and  settlements  were  agreed  upon  was  an  exceedingly 
beneficial  one  for  all  concerned.  It  was/an  essential  feature  of  the 
contract,  whereby  Arons  agreed  to  conduct -plaintiffs'  business  en- 
terprise for  an  indefinite  period  of  time,  his  compensation  to  be 
determined  by.  the  net  profits.  [The  contract  of  suretyship  was  de- 
parted from  and  varied  when  this  provision  was  wholly  disregarded, 
.and  the  case  is  brought  directly  within  the  rule  that,  if  an  essential 
condition  of  such  a  contract  is  not  complied  with,  a  surety  is  not 
bouncbjA  new  trial  must  be  had. 
"Order  reversed. 

See  also  Singer  Mfg.  Co.  v.  Boyette,  74  Ark.  600,  86  S.  W.  673,  109  Am.  St. 
104;  Fidelity  Mutual  Life  Assn.  v.  Dewey,  83  Minn.  389,  86  N.  W.  423,  54  L. 
R.  A.  945. 

A  guaranty  of  a  salesman's  contract  of  employment  in  a  certain  territory  is 
discharged  by  the  enlargement  of  the  district.  Plunkett  v.  Davis  Sewing 
Mach.  Co.,  84  Md.  529,  36  Atl.  115;  Good  Roads  Mach.  Co.  v.  Moore,  25  Ind. 
App.  479. 

But  see  Fond  du  Lac  Harrow  Co.  v.  Bowles,  54  Wis.  425,  UN.  W.  795. 


GERMANIA  FIRE  INSURANCE  COMPANY  v.  HERMANN 

F.  A.  LANGE  * 

193  Mass.  67,  78  N.  E.  746  (1906). 

Knowlton,  C.  J. :  The  defendant  signed  a  bond  as  surety  for 
the  faithful  performance  oT  his  duties  by  one  Lichtenfels,  as  an 
agenFof  the  plaintiff  company  for  Worcester.  If  the  bond  is  ap- 
pitcarfTeto  the  conditions  arising  after  the  change  hereinafter  stated, 
there  has  been  a  breach  of  its  conditions. 

At  the  time  of  its  execution  Lichtenfels  was  employed  by  the 
plaintiff  as  its  agent,  at_a_fixed  .salary  of  $1,800  per  year,  the  plain- 
tiff paying  the  office  expenses  and  brokers'  commissions,  amounting 
in  the  aggregate  to  about  $2,100  per  annum.  Nearly  nine  years 
after  the  bond  was  given  a  new  arrangement  was  made  between 
the  plaintiff  and  this  agent,  without  the  knowledge  of  the  defend- 
ant, whereby  the  agent  was  to  receive,  instead  of  a  fixed  salary,  a 


. 


396  SURETYSHIP   DEFENSES 

stated  commission  on  all  business  transacted  by  him  in  behalf  of 
the  company,  and  was  to  pay  all  the  expenses  of  the  business  in 
Worcester,  which  included  the  rent,  heating  and  lighting  of  the 
office,  the  advertising  and  the  salaries  of  sub-agents.  He  also  be- 
came responsible  to  the  company  for  all  premiums  due  on  policies 
written  by  him  or  his  sub-agents  and  not  returned  by  ■  him  to  the 
company  for  cancellation.  In  other  particulars  his  duties  were  sub- 
stantially the  same  as  those  he  was  performing  while  receiving  a 
salary.  If  he  did  as  much  business  under  the  new  arrangement 
as  under  the  old,  it  would  yield  him  a  greater  compensation  than 
his  former  salary.  The  defendant  had  no  knowledge  of  this  change 
in  the  arrangement  until  after  the  death  of  Lichtenfels.  The  only 
question  in  the  case  is;  whether  this  change  in  the  contract  between  / 
the  plaintiff  and  the  agent  discharged  the  defendant  from  liability 
'   for  the  agent's  subsequent  defaults. 

The  bond  contains  no  description  of  the  contract  between  the 
plaintiff  and  Lichtenfels,  beyond  the  statement  that  he  had  been 
appointed  agent  for  this  insurance  company  for  Worcester.  But 
in  the  condition  of  the  bond  many  of  his  duties  are  mentioned, 
*  and  the  defendant  also  was  told  by  the  parties  what  the  contract 
was.  If  he  had  not  been  expressly  informed  of  this,  he  would 
have  been  presumed  to  have  contracted  in  reference  to  the  actual 
conditions,  and  to  have  known  what  they  were,  so  far  as  they  bore 
upon  the  liability  assumed.  It  was  there  fore  I  competent  to  prove 
by  oral  evidence  the  terms  of  the  contract  between  the  plaintiff 
and  the  agent,  to  show  the  nature  and  extent  of  the  defendant's 
liability.  Rollstone  National  Bank  v.  Carleton,  136  Mass;  226; 
Grocers'  Bank  v.  Kingman,  16  Gray  473;  Boston  Hat  Manufactory 
v.  Messinger,  2  Pick.  223. 

The  general  rule  is  familiar,  that  a  substantial  change  in  the 
conditions  to  which  such  a  bond  relates,  made  without  the  knowl- 
edge and  consent  of  the  surety,  discharges  him  from  further  lia- 
bility. Warren  v.  Lyons,  152  Mass.  310,  312;  Grocers'  Bank  v. 
Kingman,  16  Gray  473;  Northwestern  Railway  v.  Whinray,  10 
Exch.  77;  Boston  Hat  Manufactory  v.  Messinger,  2  Pick.  223.  In 
Warren  v.  Lyons  Mr.  Justice  William  Allen  reviewed  the  authori- 
1  ties,  and  said  in  the  opinion :  "The  question  here  is  not  merely 
whether  the  creditor  has  done  some  act  which  impairs  the  security 
or  enhances  the  risk  of  the  guarantor;  but  it  relates  to  the  subject- 
matter  of  the  guaranty — whether  the  contract  broken  is  the  con- 
tract the  performance  of  which  is  guaranteed.  TheYguaj^mti 
not  be  held  to  a  contract  different  from  the  terms  oiIuTguaranty, 
,-Jeven  though  it  be  apparently  more  beneficial  to  him." 

In  the  present  case  the  question  is  whether  there  was  a  substan- 
tial change  in  the  contract  to  which  the  bond  relates.  It  seems  to 
us  very  plain  that  there  was.    The  case  of  Northwestern  Railway 


ALTERATION  397 

v.  Whinray,  10  Exch.  77*  which  has  been  cited  and  followed  in 
this  court,  was  very  similar  to  this,  and  fully  covers  it. 

The  decision  in  Amicable  Ins.  Co.  v.  Sedgwick,  110  Mass.  163, 
was  by  only  a  majority  of  the  court,  and  the  change  in  the  contract 
was  much  less  than  the  change  in  the  present  case,  as  it  pointed 
out  in  the  opinion.  That  decision  does  not  sustain  the  present  plain- 
tiff's contention. 

Judgment  for  the  defendant. 


LIONBERGER,  ASSIGNEE,  v.  KRIEGER  ET  AL.,  APPEL- 
LANTS 

88  Jl/o.  160  (1885). 

Black,  J. :  This  is  a  suit  upon  the  bond  of  the  £a_shier  of  the 
banking  corporation  of  which  the  plaintiff  is  the  assignee,  under 
the  laws  of  this  stale  relating  to  voluntary  assignments.  The  bond 
is  dated  February  13,  1869,  and  is  in  the  penal  sum  of  twenty 
thousand  dollars.    It  is  conditioned  as  follows : 

"Now,  if  the  said  J.  Philip  Krieger,  Jr.,  shall 'well  and  truly  and 
faithfully  perform  the  duties  of  cashier  of  said  bank  for  and  dur- 
ing all  the  time  he  shall  hold  such  office  of  cashier  of  said  bank, , 
and  for  and  during  all  the  time  he  may  continue  to  act  as  such 
cashier  of  said  bank,  whether  under  the  present  appointment,  or 
under  future  reappointments,  and  shall  well,  truly  and  faithfully 
account  for,  and  render  over  to  said  bank  all  such  money."  etc., 
"and  shall,  while  he  continues  in  such  service,  either  under  the 
present  appointment,  or  any  future  reappointments,  faithfully  and 
to  the  best  of  his  ability,  perform  all  trusts  reposed  in  him,  and 
all  duties  devolved  on  him  by  the  law  of  the  land,  or  by  any  by- 
law, rule,  order  or  resolution  of  said  board,  now  existing  or  here- 
after made,  enacted,  or  adopted,  not  inconsistent  with  the  laws  of 
the  land,  then,"  etc. 

Krieger  entered  upon  his  duties  and  continued  to  act  as  cashier 
until  and  during  the  year  1878,  under  annual  reappointments,  made 
by  resolution  of  the  board  of  directors  at  the  annual  election  of 
officers.  In  1878,  and  while  acting  as  such  cashier,  he  made  breach 
of  the  conditions  of  the  bond  to  many  times  the  amount  of  the 
penalty,  the  circumstances  of  which  need  not  be  stated. 

The  bank  was  organized  in  February,  1869,  under  the  general 
laws  of  this  state,  with  a  capital  stock  of  two  hundred  and  fifty 
thousand  dollars,  which  was  increased  in  April  of  that  year  to  three 
hundred  thousand  dollars ;  twenty  per  cent,  of  the  stock,  and  no 

*In  Northwestern  R.  Co.  v.  Whinray  the  surety  was  discharged  because  the 
compensation  of  the  principal  was  changed. 


398  SURETYSHIP   DEFENSES 

more,  was  paid  in.  The  sureties  contend  that  because  of  this  in- 
crease during  the  first  year  they  are  released  from  all  liability  on 
the  bond.  A  surety  has  an  undoubted  right  to  rely  upon  the  letter 
and  strict  terms  of  the  bond.  "It  is  not  sufficient  that  he  may  sus- 
tain no  injury  by  a  change  in  the  contract,  or  that  it  may  be  even 

^for  his  benefit.  He  [has  a  right  to  stand  upon  the .  very.  _terrns_of 
his  contract,  and  if  he  does  not  assent  to  any  variation  of  it,  and| 
a  variation  is  made,  it  is  fatal."  The  rule  thus  stated  in  Miller  v. 
Stewart,  9  Wheat.  702,  has  been  again  and  again  asserted  here 
and  elsewhere  by  one  form  of  expression  and  another.  But  this 
does  not  mean  that  the  fair  import  of  the  obligation  is  to  be  dis- 
regarded. Another  rule  equally  binding  upon  the  courts  is  that  in 
[.  the  construction  of  the  contract  of  a  surety,  as  well  as  of  every 
other  contract,  the  question  is :  what  was  the  intention  of  the  par- 

•  ties  as  disclosed  by  the  instrument  read  in  the  light  of  the  sur- 
rounding circumstances?  Brandt  on  Suretyship,  §  80.  In  the  ap- 
plication of  these  rules  of  law  appellants  place  much  reliance  upon 
the  case  of  Grocers'  Bank  v.  Kingman  et  al.,  16  Gray  476.  There 
the  stock  was  increased  from  $400,000,  first  to  $500,000,  and  then  \ 

■  to  $750,000,  because  of  which  the  sureties  on  the  cashier's  bond 
were  held  to  be  discharged.  The  court  observed,  "the  risk  of  the 
sureties  was  thereby  very  greatly  enhanced,  especially  as  they  un- 
dertook to  save  the  bank  harmless  from  every  loss  that  might  arise 
from  the  cashier's  mistakes  as  well  as  losses  arising  from  his  fraud," 
etc.  Because  of  the  inability  to  answer  for  mistakes  the  court  dis- 
tinguished that  case  from  Bank  v.  Wollaston,  3  Harr.  90.  In  that 
case  the  bond  was  made  in  1833,  and  the  stock  was  increased  in 
1837,  by  act  of  the  legislature.  The  sureties  of  the  cashier  con- 
tended that  they  were  thereby  released.'  The  court  said:  "The 
simple  answer  to  the  proposition  is  that  there  was  no  enlargement 
of  the  duties  of  the  officer.  The  sphere  of  his  duties  was  the  same, 
although  the  subject-matter  of  his  charge  might  be  increased,  which 
is  no  more  than  what  happens  from  day  to  day,  from  fluctuation 
in  the  amount  of  deposits."  In  a  recent  case  decided  by  the  Su- 
preme Judicial  Court  of  Massachusetts  (Railroad  v.  Loring,  19 
Reporter  436),  the  bond  was  conditioned  for  the  faithful  perform- 
ance of  the  duties  of  a  ticket  agent  "which  are,  or  may  be,  imposed 
upon  him  under  this  or  any  future  appointment."  The  agent's  sal- 
ary was  increased  from  one  thousand  to  eighteen  hundred  dollars 
per  year.  The  stock  of  the  company  was  increased  from  $2,853,400 
to  $4,667,600.  At  first  he  sold  tickets  over  one  thousand  and  forty 
miles  of  railroad,  and  for  three  steamboat  lines ;  the  business  was 
increased  to  twenty-two  hundred  and  fifty  miles  of  railroad  and 
five  steamboat  lines.  Notwithstanding  these  changes  the  sureties 
were  held  not  to  be  discharged.  The  reasons  assigned  are  that 
there  was  no  change  in  the  office,  that  the  nature  of  the  duties 
remained  the  same,  and  that  the  increase  of  business  was  fairly 


ALTERATION  399 


contemplated  by  the  bond,  looking  at  the  character  of  the  position 
which  the  agent  held.  See  also  Ry.  Co.  v.  Goodwin,  3  Wels.  Hurl. 
and  Gor.  320;  Morris  Canal,  etc.,  v.  Van  Vorst's  Admr.,  21  N. 
J.  L.  100;  Strawbridge  v.  Ry.,  14  Md.  360. 

The  stock,  it  is  conceded,  was  increased  in  pursuance  of  §  2, 
ch.  62,  General  Statutes,  and  hence,  by  virtue  of  a  vote  of  the 
directors  made  in  compliance  with  a  vote  of  the  stockholders  held 
in  conformity  with  the  by-laws.  It  is  not  contended  that  the  sure- 
ties would  have  been  released  had  the  whole  of  the  two  hundred 
and  fifty  thousand  dollars  been  called  in,  for  that,  it  is  conced 
would  have  been  within  the  letter  of  the  bond,  so  it  might  be  urged 
that  the  stock  could  only  be  increased  by  some  "by-law,  rule,  or 
resolution  of  the  board,"  based,  of  course,  upon  a  vote  also  of 
the  stockholders.  But  we  do  not  place  our  result  on  so  narrow  a 
ground.  tThe  bond  must  be  understood  and  read  in  the  light  of"/ 
the  then  existing  law!  It  must  have  been  in  the  <-<>ntemplatioh  of 
the  parties  that  the  bank  would  enlarge  its  business  by  all  lawful 
ways  and  means,  not  going  beyond  a  banking  business.  TJjis  i.t 
could __do,  if  desired,  by  increasing  its  stock.  The  conditions  of* 
tTTe^bond  are  broad,  and  look  to  the  future  and  to  the  making  of 
additional  by-laws  and  rules.  Thatlthis  increase  of  sto.de  was  fairly 
within  the  contemplation,  of  the  bon^L— we  think,  is  clear,  and  the 
court  might  well  have  so  declared  in  its  instructions.     *     *     * 

We  see  no  reason  why  the  judgment  in  this  case  should  be  di  - 
turbed.    It  is  affirmed.    All  concur. 

Accord :    Bank  of  Wilmington  v.  Wollaston,  3  Harr.  90. 
Contra:    Grocers'  Bank  v.  Kingman,  16  Gray   (Mass.)  473. 


AX  DREW  H.  KELLOGG  v.  FRANK  M.  SCOTT  ET  AL. 
58  N.  J.  Eg.  344,  44  At!.  190  (1899). 


Emery,  V.  C. :  Complainant  files  a  bill  to  foreclose  a  mortgage 
given  by  Mrs.  Fish  upon  her  lands  to  secure  whatever  might  be- 
come due  to  complainant  under  a  bond  given  by  defendant  Frank 
M.  Scott  and  Mrs.  Fish,  who  was  his  mother,  as  his  surety  upon 
complainant  taking  Scott  into  his  employment.  The  bond,  a  joint  - 
and  several  bond  of  principal  and  surety,  dated  November  19,  1892. 
in  the  penal  sum  cA  $7,000,  contains  the  following  recital  and  con- 
dition : 

"Whereas,  the  above  bounded  Frank  M.  Scott  is  about  to  act 
as  bookkeeper  and  collector  for  the  above-named  Andrew  H.  Kel- 
logg, and  by  reason  thereof  will  have  the  control  of  sums  of  money 
and  be  required  to  perform  various  acts.  Now  the  condition  of 
this  obligation  is  that  if  the  above  bounden  Frank  M.  Scott  shall 


400  SURETYSHIP    DEFENSES 

well  and  truly  account  for  and  pay  over  and  dispose  of  all  moneys 
and  property  of  the  said  Andrew  H.  Kellogg,  which  may  come 
into  his  possession  or  under  his  control,  and  shall  well  and  truly 
discharge  and  perform  all  his  duties  as  such  bookkeeper  and  col- 
lector, and  if  the  said  obligors  or  either  of  them  shall  pay  over 
to  the  said  Andrew  H.  Kellogg  the  sum  and  amount  of  any  and 
all  loss,  damages,  costs  and  expenses  suffered  or  incurred  by  the 
said  Andrew  H.  Kellogg,  by  reason  of  the  failure  of  the  said  Frank 
M.  Scott  to  pay  over  and  account  for  all  moneys  and  property, 
or  his  failure  to  discharge  and  perform  all  his  duties  as  aforesaid, 
within  ten  days  after  notice  is  given  to  the  said  Rosanna  E.  Fish,  of 
the  sum  and  amount  so  to  be  paid,  then  this  obligation  to  be  void," 
etc. 

Scott  entered  the  employ  of  complainant  on  November  23,  1892, 
continuing  until  February,  1897.  During  that  time  Scott  misap-_ 
propria  ted  his  employer's  moneys  to  the  extent  of  about  $6,300, 
and  the  bill  is  filed  to  foreclose  the  mortgage  for  this  repayment. 
Mrs.  Fish,  subsequent  to  the  execution  of  this  mortgage,  and  in 
November,  1853,  gave  a  mortgage  to  the  defendant,  the  American 
Insurance  Company,  $1,000,  for  money  loaned,  and  in  August, 
1895,  gave  another  mortgage  for  $2,000  to  the  insurance  company 
to  take  up  the  first  mortgage  of  $1,000,  which  was  then  canceled, 
and  to  secure  an  additional  loan.  Fifteen  hundred  dollars  is  now 
due  on  this  mortgage,  with  interest  from  February,   1897. 

Mrs.  Fish  died  in  July,  1896,  testate,  having  devised  the  lands 
in  question  to  her  son,  Frank  M.  Scott,  for' life,  with  remainder 
to  his  children,  the  infant  defendants,  and  giving  a  power  of  sale 
to  the  defendant  executors. 

The  proofs  showed  that  complainant  was  engaged  in  the  job 
printing  business  in  New  York  City,  the  volume  of  which  amounted 
to  from  $80,000  to  $130,000  a  year  during  the  time  of  Scott's  em- 
ployment. Previous  to  this  employment  Scott  had  been  convicted 
of  embezzlement  from  a  previous  employer,  and  after  serving  part 
of  his  term  of  imprisonment  had  been  pardoned.  The  complainant 
knew  this  and  the  surety,  Scott's  mother,  must  also  be  presumed 
to  have  known  it.  From  the  time  of  this  employment  Scott  was 
not  only  bookkeeper  and  collector,  but  also  the  cashier  of  com- 
plainant, and  the  only  cashier,  and  as  such  had  charge  of  all  the 
cash  received  in  the  office,  as  well  as  charge  of  the  books  and  pay 
rolls.  He  continued  to  be  bookkeeper  as  well  as  cashier  during 
his  whole  term  of  employment.  He  abstracted  money  under  his 
control  and,  to  the  extent  of  $5,996,  concealed  the  abstractions  by 
means  of  false  additions  or  footings  in  the  cash-book  from  time 
to  time,  by  which  false  footings  the  cash  paid  out  appeared  to  be 
larger  than  was  actually  paid,  to  the  extent  of  his  embezzlement. 
Scott  also  had  charge  of  making  out  the  pay  rolls  for  the  employes 
and  received  the  cash  for  their  payment  and  paid  the  same.    By 


ALTERATION  401 


false  footings  and  other  false  entries  on  the  pay  rolls,  he  drew 
out  from  time  to  time  more  money  than  he  paid  over  to  the  em- 
ployes, the  deficiency  from  this  source  amounting  to  $312.66,  as 
nearly  as  can  now  be  ascertained  on  the  present  proofs. 

Upon  this  state  of  facts,  disclosed  by  complainant's  evidence, 
it  is  insisted  on  behalf  of  the  insurance  company  and  the  infant 
defendants,  that  the  misappropriations  of  money  were  made  by 
Scott  in  his  employment  as  cashier  and  not  as  bookkeeper,  and 
thar_th£_Jbond  properly  construed  covers  only  such  defalcations  in 
Scott's_capacity  of  bookkeeper.  The  general  words  of  the  condi- 
tion provide  that  "Scott  shall  well  and  truly  account  for  and  pay 
/over  and  dispose  of  all  moneys  and  property  of  Kellogg,  which 
/  may  come  into  his  possession,  or  under  his  control,"  and  are  not 
C  in  terms  confined  to  money  received  by  him  as  bookkeeper ;  but 
it  is  claimed  that,  in  reference  to  bonds  of  sureties  for  the  faith- 
ful performance  of  the  duties  of  an  officer  or  employment,  it  is 
a  settled  general  rule  of  construction  that  where  the  bond  contains 
a  recital  of  the  character  or  scope  of  the  .employment,  this  recital  , 
will  restrict  the  general  words  of  the  condition  to  the  service  speci- 
fied,  unless  it  expressly  appears  that  it  was  not  intended  to  be  so  . 
restricted.  The  reason  for  thus  limiting  the  general  terms  of  the  a, 
condition  by  the  recital  is  said  to  be  that  the  object  of  the  bond 
being  a  security  on  employment,  if  the  parties  state  in  the  bond 
the  character  or  scope  of  the  employment,  that  will  be  taken  as 
indicating  the  limit  of  the  surety's  contract  in  the  absence  of  any  - 
words  which  show  that  the  parties  intended  that  the  recital  shall 
not  have  this  effect.  And  many  cases  have  been  cited  in  which, 
on  the  construction  of  the  agreement  itself,  the  recitals  have  been 
so  construed  to  restrict  the  general  words  in  the  condition.  The 
leading  case  is  Arlington  v.  Merricke,  2  Saund.,  and  the  cases  are 
collected  in  the  note  (h)  (at  p.  415,  3).  Also  in  1  Ch.  Cont.  (11th 
Am.  ed.)  765;  1  Brandt  S.  &  G.,  ch.  6,  p.  166,  etc.,  and  National 
Banking  Association  v.  Conkling,  90-N.  Y.  116  (Earl,  J.,  at  p.  121.) 
But,  in  my  judgment,  the  liability  of  the  surety  for  a  breach  of  £CJ| 
the  condition  of  the  bond  will  still  remain,  even  if  it  be  held  that 
the  clause  of  the  bond  relating  to  the  payment  of  money  does  not 
cover  money  under  Scott's  control  as  cashier. 

The  bond  secures  "the  faithful  performance  of  Scott's  duty  as 
bookkeeper,"  and  this  certainly  includes  the  true  entry  and  foot- 
ing or  the  cash-book  and  pay  rolls,  which  as  bookkeeper  he  makes 
up,  as  well  as  the  duty  of  not  abstracting  his  employer's  money 
which  would  come  within  his  reach  in  the  course  of  his  employ- 
ment as  bookkeeper.  For  his  failure  to  perform  this  duty  of  keep- 
ing true  entries,  the  bond  for  securing  his  faithful  services  as  book- 
keeper is  forfeited,  and  inasmuch  as  he  himself  took  the  moneys, 
whose  abstraction  was  concealed  by  the  false  entries  which  he  made 
26 — De  Witt. 


402  SURETYSHIP    DEFENSES 

as  bookkeeper,  the  employer,  so  far  as  the  terms  of  the  bond  go, 
would,  I  am  inclined  to  think,  be  entitled  to  recover  substantial 
damages  to  the  amount  of  the  abstractions,  either  by  the  book- 
keeper himself  in  any  capacity,  or  by  another,  if  the  abstractions 
were  intentionally  concealed  from  the  employer  by  means  of  the 
false  entries  made  by  the  bookkeeper.  Rochester  City  Bank  v. 
Elwood,  21  N.  Y.  88  (1860),  and  Jephson  v.  Howkins,  2  Man.  & 
G.  336  (1841),  seem  to  establish  the  right  to  recover  such  sub- 
stantial damages  as  the  result  of  false  entries  for  the  bookkeeper's 
own  profit.  But  assuming  that  the  loss  in  question  may  be  held  to 
be  the  result  of  the  failure  of  Scott  to  perform  his  duties  as  book- 
keeper, the  most  serious  question  raised,  in  reference  to  the  lia- 
bility of  the  surety  in  this  bond,  arises  from  the  fact  that  Scott 
was  employed  as  cashier  after  the  giving  of  this  bond,  which  re- 
cited only  his  employment  as  bookkeeper  and  collector.  This  em- 
ployment as  cashier,  with  control  as  such  over  all  the  money  of  the 
office  as  well  as  of  the  books — for  he  still  continued  as  bookkeeper — 
was  a  material  change  by  the  act  of  the  parties  (Kellogg  and  Scott) 
without  knowledge  of  the  surety,  in  the  nature  of  the  duties  of  the 
employes  and  it  was  a  change  that  materially  altered  the  duties 
of  the  employment,  so  as  to  affect  the  peril  of  the  surety.  /The  em- 
ployment which  was  in  the  mind  of  the  surety  upon  giving  the  bond 
viand  which  the  obligee  was  about  to  make,  was  that  of  bookkeeper 
anrl    co11ector._     These    descriptions    of    the    character    of    eihplOy- 

*menF  do  not  of  themselves  indicate  an  employment  which  would 
give  control  of  the  entire  cash  of  a  business  like  complainant's,  as 
well  as  of  its  books,  nor  is  there  any  proof  in  the  case  that  by  the 
employment  as  bookkeeper  and  collector  in  complainant's  business, 
the  control  of  the  cash  of  the  business  as  cashier  was  supposed  by 
the  parties  to  be  included.  The  general  rule  is  settled,  that/ in  the 
ease  of  bonds  to  secure  the  performance  of  the  duties  of  an  office  or 
of  an  employment,  where  the  nature  of  the  employment  is  so  al- 
tered, either  by  the  act  of  the  parties,  employer  and  employe,  or 
of  the  legislature    (in  case  of  public  office),  that  the  risk  of  the 

I  surety  is  materially  altered,  the  bond  is  avoided,  even  though  it  is 
forfeited  by  a  breach  of  the  duties  of  the  original  office  or  of  the 
original  employment,  which  was  the  subject  of  the  guaranty.  \This 
general  rule  has  not  been  questioned  since  the  leading  cases.  Bonar 
v.  MacDonald,  3  H.  L.  Cas.  226  (1850)  ;  Pybus  v.  Gibb,  6  El.  &  B. 
902  (1856),  and  these  cases  were  approved  and  followed  in  this 
point  in  Manufacturers'  Bank  v.  Dickerson,  12  Vr.  448,  451,  etc. 
(Supreme  Court,  1879). 

The  facts  in  this  case  come  within  the  application  of  this  rule. 
The  bond,  as  I  construe  it,  was  given  on  the  promise  to  the  surety 
to  employ  Scott  as  bookkeeper  and  collector,  and.  his  employment 
subsequent  to  the  execution  of  this  bond,  as  cashier  as  well  as 
bookkeeper,  did  make,  as  I  find  upon  the  facts  in  the  case,  a  material 


ALTERATION  403 

change  jn-tbe-^iature  of  his  employment,  by  which  the  risk  of  the 
surety  was  increased  or  varied  to  her  disadvantage,  and  the  bond 
fmrst^trieretore  be  held  void  as  against  the  surety  and  those  who 

^aTrrrTPhdef  her: — : — 

IrTllTiscase  the  defense  of  discharge  of  the  surety  by  alteration 
of  the  contract  of  employment  was  not  specially  set  up  in  the 
answer  of  the  insurance  company  or  of  the  infants,  the  answers-  . 
of  the  latter  being  formal  only,  and  submitting  their  interests  to  the  ' 
protection  of  the  court.  The  question,  however,  was  first  presented 
by  the  complainant's  own  evidence  at  the  trial,  and  was  fully  ar- 
gued by  counsel,  and  is,  in  my  judgment,  the  vital  question  in  the 
case.  Counsel  may,  if  they  desire,  apply  to  amend  the  answers  in 
order  to  put  the  defense  formally  on  the  record.  /As  to  the  infant 
defendants,_jjie— court  usually  allows  or  directs  such  amendments 
iii~either  bills  or  answers  filed  on  their  behalf  as  may  be  necessary 
to  protect  their  interests.     Mitf.  &  T.  PI.  &  Pr.  419. 


Accord:    National  Mechanics'  Banking  Assn.  v.  Colliding,  90  N.  Y.  116,  42 
Am.  Rep.  405n. 


(b)    Public  Officers 

THE  PEOPLE  OF  THE  STATE  OF  NEW  YORK,  APPEL- 
LANTS, v.  ALDEN  VILAS  ET  AL.,  RESPONDENTS  , 


36  N.  Y.  459,  93  Am.  Dec.  520  (1867). 

This  action  was  brought  against  the  defendants  who  were  sure- 
ties upon  the  official  bond  of  M.  P.  Jackson,  as  loan  commissioner 
oXjJie—county  of  St.  Lawrence,  for  loaning  the  moneys  of  the 
United  States  deposited  with  the  state.  The  bond  was  dated  Jan- 
uary 15,  1850.  The  questions  of  law  that  arose  upon  the  trial  at 
circuit  were,  whether  a  judgment  of  nonsuit,  rendered  in  an  action 
previously  brought  for  the  same  cause,  barred  this  action;  and, 
secrniflT^wrretiTer  the  additional  duties  imposed  upon  the  commis- 
sioners by  the  Act  of  April  10,  1850,  discharged  their  sureties.  It 
appeared  in  the  present  case  that  by  the  operation  of  that  act,  five 
hundred  dollars  was  added  to  the  capital  of  the  fund  in  charge  of  the 
commissioners  of  St.  Lawrence  county,  which,  prior  thereto,  vas 
upward  of  eighty  thousand  dollars.  The  cause  was  tried  by  the 
court  without  a  jury,  and  upon  the  above  grounds  judgment  vas 
rendered  for  the  defendants  which,  upon  appeal  to  the  general  i  rm 
of  the  fourth  district,  was  affirmed  upon  the  latter  ground,  om 
which  the  plaintiff  appealed  to  this  court. 

Grover,  J . :  The  real  question  in  this  case  is,  whether  the  ;  di- 
tion  made  to  the  capital  of  the  fund  placed  in  diarge  of  the  (  mi- 


404  SURETYSHIP    DEFENSES 

missioners  by  the  Act  of  April  10,  1850,  discharged  the  sureties 
upon  their  official  bonds.  An  examination  of  that  act  will  show 
that  it  contains  no  provision  effecting  such  a  result,  unless  it  is  pro- 
duced by  this  addition  thereby  made  to  the  capital  of  the  fund. 
This  presents  a  question  of  vast  importance  to  the  public.  It  not 
only  affects  all  the  official  bonds  of  all  this  class  of  commission- 
ers holding  office  at  the  time  of  the  passage  of  the  act,  but,  on 

[  examination  into  the  matter  would,  I  think,  show  that  it  affected 
a  great  number  of  official  bonds  in  other  cases.  This  considera- 
tion can  not  change  the  law  if  settled  in  favor  of  the  sureties,  but 
the  obvious  inconvenience  of  a  rule  working  such  results  requires 
a  thorough  examination  of  the  reasons,  and  authority  upon  which 
it  is  claimed  to  be  established.  As  between  private  parties,  the 
law  is  that  any  alteration  in  the  obligation  or  contract,  in  respect  of 
which  a  person  has  become  surety  without  the  consent  of  the  latter, 

■^extinguishes  his  obligation  and  discharges  him|(Burge  on  Surety, 
214;'"Theobold,  p.  132;  Whirton  v.  Hall,  5  Barn.  &  Cress.  269)  ; 
and  this  result  follows,  irrespective  of  the  inquiry  whether  the  al- 
teration could  work  any  injury  to  the  surety  or  not  (Bangs  v. 
Strong,  4  Com.  315).  The  reason  upon  which  this  rule  is  founded 
is,  that  the  surety  has  never  made  the  contract  upon  which  it  is 
sought  to  charge  him.  His  answer  is,  if  it  is  sought  to  charge  him 
upon  the  altered  contract,  that  he  never  made  any  such  bargain ; 
and  if  upon  the  original  contract,  that  such  contract  no  longer 
exists,  having  been  legally  terminated  by  the  altered  or  substituted 
contract  made  by  the  parties.  In  either  contingency,  the  answer 
furnishes  a  complete  defense.  It  is  claimed  by  the  defendants, 
that  the  same  rule  is  applicable  to  official  bonds.  \  In  this  they  are 
right,  if  the  reasons  apply  and  the  same  answers  can  be  given.  An 
official  bond  is  a  contract  with  the  people  for  the  faithful  discharge 
of  the  official  duties  of  the  officer.  In  the  present  case  it  was  that 
Jackson  should  faithfully  discharge  the  duties  of  said  commissioner 
pursuant  to  the  act  entitled  an  act  authorizing  a  loan  of  certain 
moneys  belonging  to  the  United  States,  deposited  with  the  state  of 
New  York  for  safe  keeping,  and  should  discharge  his  said  duties 
without  favor,  malice  or  partiality.  These  duties  Jackson  has  not 
performed,  but  the  sureties  claim  to  be  discharged,  on  the  ground 
that,  subsequent  to  the  making  of  the  bond,  five  hundred  dollars 
was  added  to  the  capital  of  the  fund.  The  duties  of  the  commis- 
sioner as  to  this  five  hundred  dollars  were  precisely  the  same  as 
required  by  the  act  referred  to  in  the  bond.  The  position  of  the 
defendants  must  go  to  the  extent  that  any  alteration  made  by  the 
legislature  in  the  act  affecting  the  duties  of  the  .commissioner  will 
discharge  his  sureties.  In  other  words,  that  thelbond  is  to  be  re- 
garded as  a  contract  faithfully  to  discharge  the  dirties  of  the  office 
as  then  prescribed  by  the  act,  and  that  any  alteration  in  these  duties 
made  by  the  legislature  subsequently,  alters  the  contract,  and  hence 


ALTERATION  405 

I 

discharges  the  sureties.  If  this  position  be  sound,  it  follows  that 
no  change  can  be  made  by  the  legislature  relative  to  the  amount  of 
money  in  their  hands,  the  mode  of  loaning  it,  their  compensation 
or  their  duties  in  any  respect,  without  discharging  their  official 
bond. 

It  may  be  remarked  that  it  would  not  only  relieve  the  sureties 
upon  the  bond  but  the  officer  himself,  unless  it  should  be  held  that 
his  continuance  in  office  after  the  passage  of  the  act  making  the 
change  was  an  assent  on  his  part  to  such  change.  The  analogy 
between  this  class  of  cases  and  the  contracts  of  individuals  fails 
in  this  respect.  In  the  latter  no  alteration  can  be  made  without  the 
mutual  assent  of  both  parties.  In  the  former  the  legislature  has  I 
power  at  any  and  all  times  to  change  the  duties  of  officers,  and  the 
continued  existence  of  this  power  is  known  to  the  officer  and  his 
sureties,  and  the  officer  accepts  the  office  and  the  sureties  execute 
the  bond  with  this  knowledge.  It  is,  I  think,  the  same  in  effect  as 
though  this  power  was  recited  in  the  bond.  Had  this  been  done  it 
would  not  be  claimed  that  the  sureties  were  discharged  by  its  exer- 
cises. That  an  individual  given  a  guaranty  of  the  faithful  perform- 
ance of  a  contract  by  one  party  containing  a  clause  authorizing  the 
other  to  make  alterations  in  certain  of  its  provisions,  it  would  not 
be  claimed  that  the  surety  was  discharged  by  alterations  so  author- 
ized ;  and  yet  this  is  nothing  more  than  the  sureties  knew  the  legis- 
lature were  competent  to  do  in  the  present  case.  Why  has  it  never 
been  claimed  in  behalf  of  officers  who  had  given  bonds  for  the  dis- 
charge of  their  official  duties,  that  a  contract  had  been  made  with 
them  in  relation  thereto  unchangeable  by  the  legislature?  Simply 
because  it  is  understood  that  all  these  acts  are  subordinate  to  the 
lawmaking  power,  and  necessarily  subject  to  such  changes  as  may 
from  time  to  time  be  deemed  expedient.  Every  official  oath  is  so 
interpreted.  It  is  not  true  that  one  taking  an  oath  to  discharge  the 
duties  of  any  office  simply  swears  to  discharge  them  as  then  pre- 
scribed by  law ;  but  that  he  swears  to  discharge  them  as  they  may 
from  time  to  time  be  fixed  and  regulated  by  the  lawmaking  power^_ 
So /an  official  bond  conditioned  for  the  discharge  of  the  duties  of  , 
the  office  should  in  like  manner  be  understood,  not. as  restricted  to 
duties  as  then  prescribed  by  law,  but  as  embracing  the  duties  of  the 
office  as  from  time  to  time  fixed  and  regulated  by  the  legislature. 
It  may  be  said  that,  although  such  might  be  the  general  rule,  yet 
that  the  bond  in  the  present  case  contains  a  reference  to  the  act, 
and  requires  the  duties  to  be  performed  in  accordance  therewith. 
To  this  it  may  be  answered,  that  section  three  of  the  act  providing 
for  giving  the  bond  and  its  requisites  requires  no  such  reference, 
and  that  the  bond  in  suit,  in  addition  thereto,  contains  all  required, 
that  is,  the  true  and  faithful  performance  of  its  duties  without  fa- 
vor, malice  or  partiality.  The  /act  does  not  prescribe  the  amount 
of  money  to  be  placed  in,  or  which  shall  remain  in  the  hands  of 


406  SURETYSHIP   DEFENSES 

\ 

the  commissioners.  In  the  absence  of  authority  determining  the 
question  otherwise,  my  conviction  is,  that  any  alteration,  addition 
or  diminution  of  the  duties  of  a  public  officer  made  by  the  legisla- 
ture, docs  not  discharge  his  official  bond  or  the  sureties  thereon  so 
long  as  the  duties  required  are  the  appropriate  functions  of  the  par- 
ticular officer!  That  all  such  alterations  are  within  the  contempla- 
tion of  the  parties  executing  the  bond.  That  imposing  duties  of 
another  description,  and  not  appropriate  to  the  office,  would  dis- 
charge sureties  not  coming  within  such  contemplation. 

The  question  was  regarded  by  the  Supreme  Court  as  settled  in 
favor  of  the  sureties  by  a  series  of  decisions.  If  this  be  so,  it  is 
equally  binding  upon  this,  as  upon  any  other  court.  No  case  hold- 
ing any  such  doctrine  has  been  decided  by  the  courts  of  this  state ; 
neither  the  opinion  of  the  learned  justice,  nor  the  brief  of  counsel 
contain  any  reference  to  any  case  in  this  state  where  the  point  has 
been  involved,  nor  have  I  been  able  to  find  any  such  case.  Bonar 
v.  McDonald  (1  Eng.  Law  and  Equity)  was  a  case  between  private 
parties,  a  bank  and  its  agent,  where  the  duties  and  responsibilities 
of  the  latter  were  increased  by  the  bank,  and  has  therefore  no  ap- 
plication to  the  present  case.  The  same  may  be  said,  of  the  North- 
western Railway  Company  v.  Whitney,  a  contract  between  the 
company  and  its  agent.  In  Oswald  v.  Mayor,  etc.  (26  Eng.  Law 
and  Equity),  the  question  was,  whether  the  bond  embraced  a  new 
appointment  to  the  office.  Bartlett  v.  Attorney-General  was  the 
case  of  a  new  deputation,  new  security  given  for  the  additional 
duty.  Pybus  v.  Gibbs  (38  Eng.  Law  and  Equity)  is  the  only  case 
where  the  question  presented  for  judgment  in  the  present  case  was 
directly  involved.  In  that  it  was  held  that  the  sureties  of  a  bailiff 
of  a  county  court  were  discharged,  on  the  ground  that  his  powers 
had  been  enlarged  and  his  responsibilities  increased.  The  court 
do  not  appear  to  have  considered  the  point,  whether  there  was  not 
a  well  grounded  distinction  between  official  bonds  and  contracts  of 
private  parties.  There  have  been  several  cases  in  this  country  where 
it  has  been  held,  that  a  subsequent  change  of  the  duties  of  an  offi- 
cer do  not  discharge  his  sureties.  In  White  v.  Fox,  9  Shepley 
(  Alaine),  it  was  held  that  a  change  in  the  duties  of  a  clerk  of  the 
court  did  not  discharge  his  sureties,  the  court  saying  that  the  sureties 
were  bound  for  the  faithful  discharge  of  the  duties  of  the  office,  that 
is.  for  the  faithful  discharge  of  such  duties  as  the  laws  for  the  time 
being  should  require  to  be  performed  by  the  clerks  of  judicial 
courts ;  and  further,  that  there  was  but  little  similarity  between  such 
cases,  and  those  arising  out  of  offices  or  trusts  regulated  by  con- 
tract. (The  People  v.  McHatton,  2  Gilm.  216).  It  was  held 
that  a  legislative  extension  of  the  time  for  paying  over  the  taxes 
of  three  weeks  did  not  discharge  the  sureties  of  the  officer.  State 
v.  Carleton  (3  Gill.  Md.)  is  a  similar  case.  In  Kindle  v.  State 
(7  Black.  586)  a  similar  rule  was  applied  where  the  time  for  pay- 


ALTERATION  407 

merit  by  a  county  treasurer  was  extended.  In  Coulter  v.  Morgan's 
Administrator  (12  B.  Monroe  278)  it  was  held,  that  the  sureties 
were  bound,  although  the  taxes  were  increased  after  the  giving  of 
the  bond.  In  Mooney  v.  State  (13  Mo.  7)  it  was  held  that  sureties 
of  a  sheriff  were  bound  for  the  performance  of  new  duties  created 
after  giving  the  bond.  In  Bartlett  v.  Governor  (2  Bibb  Ky.)  a 
similar  ruling  was  made.  Other  similar  cases  might  be  cited,  but-^ 
those  already  cited  I  think  sufficient  to  show  that  ]a  legislative  altera- : . 
tion  of  the  duties  of  an  officer  do  not  discharge  the  sureties  so  Hong 
as  the  duties  remain  appropriate  to  the  office./  My  conclusion  is 
that  the  judgment  should  be  reversed,  and  a  new  trial  ordered,  with 
costs  to  abide  the  event. 

Accord :  Compher  v.  People,  12  111.  290 ;  Dawson  v.  State,  38_#hio  St.  1 ; 
Commonwealth  v.  Holmes,  25  Gratt.  771 ;  Marney  v.  State,  13  MoT"?: " 



■ 

HERMAN  DENIO  ET  AL.  v.  THE  STATE  USE  OF  WAR- 
REN COUNTY 

60  Miss.  949  (1883). 

In  the  fall  of  1875  Herman.  Denio  was  elected  to  the  office  of 
clerk  of  the  circuit  court  of  Warren  county,  for  the  term  of  four 
years,  commencing  on  the  first  Monday  in  January,  1876.  Before  i 
entering  upon  the  discharge  of  his  duties  he  gave  a  bond,  as  pre- 
scribed by  the  general  law.  By  an  act,  entitled  "An  act  to  make  the 
county  of  Warren,  in  this  state,  a  separate  circuit  and  chancery 
court  district,  and  to  provide  for  defraying  the  expenses  of  the 
court  therein,"  approved  April  11,  1876  (Acts  1876,  p.  237),  and 
to  take  effect  on  the  day  of  its  approval,  it  was  provided  that  each 
attorney  and  solicitor  practicing  before  said  courts  should  pay  an 
annual  license  fee,  and  it  was  also  provided,  that  upon  each  suit, 
petition,  appeal,  or  other  matter  or  proceeding  of  a  civil  nature 
brought  in  said  court  a  docket  fee  should  be  paid.  By  this  act  the" 
clerk  was  required  to  collect  these  various  fees  and  to  pay  them  - 
over  to  the  treasurer  of  the  county,  and  it  was  provided  that  he 
should  be  responsible  for  the  same  on  his  official  bond.  This  suit 
was  brought  on  December  18,  1882,  by  the  state,  for  the  use  of 
Warren  county,  against  Denio  and  the  sureties  on  his  official  bond, 
the  declaration  alleging  that  Denio  had  failed  to  collect  and  pay 
over  $540  of  such  fees.  Denio  and  the  sureties  interposed  demur- 
rers, but  they  were  overruled,  and  from  a  final  judgment  ren- 
dered against  them  they  appealed  to  this  court. 

Campbell,  C.  J.,  delivered  the  opinion  of  the  court. 

The  act  entitled  "An  act  to  make  the  county  of  Warren,  in  this 
state,  a  separate  circuit  and  chancery  court  district,  and  to  provide 
for  defraying  the  expenses  of  the  courts  therein,"  approved  April 


408  SURETYSHIP   DEFENSES 

11,  1876  (Acts  1876,  p.  237),  in  its  provisions  for  payment  to  the 
clerks  of  said  courts  of  the  license  fees  of  attorneys  and  solicitors, 
and  docket  fees,  added  to  these  offices  duties  different  in  their  na- 
ture from  the  duties  of  the  offices  at  the  time  of  the  execution  of 
the  bond  sued  on,  and  these  added  duties  were  not  embraced  by 
the  bond  executed  before  the  act  was  passed,  although  it  declares 
that  the  clerks  should  be  responsible  for  them  on  their  bonds.  The 
distinction  is  between  an  increase  by  the  legislature  of  the  duties  of 
an  office  of  the  same  nature  or  like  kind  as  those  before  pertaining 
to  it,  after  the  execution  of  the  bond,  and  the  addition  of  new  du- 
ties, not  of  the  same  nature  or  kind  with  those  before  belonging  to 
..it.  [Every  official  bond  is  executed  with  a  knowledge  of  the  right, 
andLthe" practice  of  the  legislature,  to  enlarge  the  duties  of  the  offi- 
cer, and  for  every  additional  duty  imposed  by  competent  authority, 
which  is  not  in  the  kind,  but  in  degree,  merely  different  from  those 
before  pertaining  to  the  office,  and  leaves  the  office  unchanged  in 
its  functions,  the  bond  before  given  may  be  fairly  held  to  be  a  se- 
curity,  while  for  any  duty,  not  pertinent  in  its  nature  to  the  office  as 
existing  when  the  bond  was  given,  it  can  not  be  justly  said  to  have 
been  within  the  contemplation  of  the  obligators  that  they  should  be 
bound  for  them,  and  they  are  not  so  bound. 

Prior  to  the  act  referred  to  the  circuit  clerk  was  not_  charged  by 
law  with  any  duty  of  the  nature  or  kind  imposed  by  it.  The  apt 
under  consideration  made  a  very  important  and  material  change  in 
the  nature  of  the  duties  of  the  clerk  in  its  requirement  that  he 
should  become  a  collector  of  the  revenue  for  the  defraying  of  the 
expenses  of  a  separate  circuit  and  chancery  court  district  for  the 
county  of  Warren,  which  was  a  material  change  of  the  scheme  of 
maintaining  courts,  and  conducting  the  offices  of  the  clerks  as  be- 
fore known  and  practiced  in  this  state. 

Judgment  reversed,  the  demurrer  of  the  sureties  (appellants) 
sustained  and  the  action  dismissed  as  to  them.  Judgment  affirmed 
as  to  Denio,  and  judgment  for  costs  against  him  and  sureties  on  the 
appeal  bond. 

Accord:  White  v.  East  Saginaw,  43  Mich.  567,  6  N.  W.  86;  Reynolds  v. 
Hall,  2  111.  35 ;  Spokane  County  v.  Allen,  9  Wash.  229,  37  Pac.  428,  43  Am.  St. 
S30. 


BROWX  v.  LATTIMORE  ET  ALy 

17  Cal.  93  (1860). 

Cope,  J.,  delivered  the  opinion  of  the  court — Field,  C.  J.,  and 
Baldwin,  J.,  concurring. 

At  the  general  election  in  1857,  defendant  Lattimore  was  elected 
treasurer  of  Butte  county  and  entered  upon  the  discharge  of  his 
duties  on  the  first  Monday  in  October  of  that  year.     His  term  of 


MLu>   r     t^tfW' 


ALTERATION 


409 


Wlj 


office  was  two  years,  lint  in  1859  the  legislature  extended  the  term 
to  the  first  Monday  in  January,  1860.  The  onlyHbond  given  by  him 
"waTTexecuted  aFthe  commencement  of  the  term;  and  the  question  ^ 
is,  whether  the_sureties  upon  this  bond  are  responsible  for  his  offi- 
cial conduct  during.,  the  time  for  which  the  term  was  extended.  The 
bond,  as  originally  executed,  bound  the  sureties  for  the  performance 
of  his  duties  during  the  period  for  which  he  was  elected,  and  until 
the  election  and  qualification  of  his  successor.     His  successor  was 

(to  be  elected  at  the  general  election  in  1859,  and^by  the  law,  as  it 
then^tood^  was  to  qualify  and  enter  upon  the  duties  of  the  office  on 
the  first  Monday  in  October  following.  The  bond  was  executed  ^ 
with  reference  to  these  provisions ;  and  we  do  not  see  upon  what 
principle  the  legislature  (could  unpose  additional  responsibility  upon 
the__sureties.  They  stand  upon  the  terms  of  their  agreement,  and 
theTenlargement  of  these  terms,  even  if  contemplated  by  the  legis- 
lature', was  beyond  the  authority  of  that  body.  The  provision  of 
the  bond  in  relation  to  the  discharge  of  duties  subsequently  imposed 
has  no  application  to  a  case  of  this  nature.  It  only  applies  to  such 
duties  as  may  be  required  to  be  performed  during  the  period  of  lia- 
bility fixed  by  the  bond,  and  can  not  be  construed  as  authorizing 
an  extension  of  that  period.  The  effect  of  the  bond  must  be  deter- 
mined by  the  law  in  force  at  the  time  of  its  execution ;  and  there 
could  be  no  subsequent  legislation  increasing  the  liability  of  the 
sureties,  except  as  provided  in  the  bond  itself.  The  time  for  which 
the  term  was  extended  was  no  pari,  of  the  time  in  which  they  hadv^ 
agreed  to  be  liable ;  and  by  no  action  of  the  legislature  could  their 
liability  be  extended  beyond  that  which  they  voluntarily  assumed 
in  executing  the  bond.  They  were  to  be  bound,  it  is  true,  until  the 
qualification  of  a  successor,  but  if  the  legislature  had  not  interposed, 
the  period  of  liability  would  have  been  terminated,  by  such  quali- 
fication, on  the  first  Monday  in  October,  1859.  So  far  as  they  are 
concerned,  the  effect  of  the  extension  was  to  create  a  new  term,  to 
commence  at  the  time  and  continue  until  the  first  Monday  in  Jan- 
uary, 1860.  For  the  conduct  of  the  treasurer  during  this  term  they 
did  not  undertake  to  be  responsible,  and  can  not,  therefore,  be  held. 
The  case  of  The  People  v.  Aikenhead,  5  Cal.  106,  is  similar  in  prin- 
ciple, and  sustains  the  conclusions  at  which  we  have  arrived. 
Judgment  reversed  and  cause  remanded. 

Accord :  King  County  v.  Ferry,  5  Wash.  536,  32  Pac.  538,  19  L.  R.  A.  500, 
34  Am.  St.  880. 

Duties  imposed  upon  an  officer,  different  in  their  nature  from  those  which 
he  was  required  to  perform  at  the  time  his  official  bond  was  executed,  do  not 
render  it  void  as  an  undertaking  for  the  faithful  performance  of  those  which 
he  at  first  assumed.  It  will  still  remain  a  binding  obligation  for  what  it  was 
originally  given  to  secure.  Gaussen  v.  United  States,  97  U.  S.  584,  24  L.  ed. 
1009. 

A  diminution  of  the  salary  or  fees  of  a  public  officer  will  not  discharge  the 
bond.    Sacramento  County  v.  Bird,  31  Cal.  66;  Loving  v.  Auditor,  76  Va.  942, 


A>-* 


JkJ-^J 


410  SURETYSHIP   DEFENSES 


(c)    Building  Contracts 

O'NEAL  v.  KELLEY,/ 
65  Ark.  550,  47  S.  W.  409  (1898). 


The  facts  in  this  case  are  as   follows:     The  plaintiff,   Michael 


Kelley,  on  the  28th  day  of  April,  1894,  entered  into  a  contract  with 
defendant,  C.  A.  O'Neal,  by  which-Q  Neal.  for  the  sum  of  $2,000 
to  be  paid  by  Kelley,  agreed  to  furnish  materials  and  erect  for  said 
Kelley  a  two-story  brick  house  in  the  city  of  Texarkana.  The  contract 
required  that  the  building  should  be  constructecTaccbrding  to  speci- 
fications named  therein,  and  that  it  should  be  completed  and  turned 
over  to  Kelley  free  of  all  liens,  on  or  before  the  1st  day  of  July,  1894. 
The  defendants,  C.  C.  Dorrian,  H.  Wolf,  W.  L.  Snow  and  T.  J. 
Wheeler,  became  sureties  on  the  bond  of  O'Neal  for  the  perform- 
ance of  such  contract.  O'Neal  having  failed  to  perform  his  con- 
tract, Kelley  brought  this  action  on  his  bond  to  recover  the  sum  of 
$1,000  as  damages  suffered  by  him  on  account  of  such  failure.  The 
sureties  set  up  that  there  had  been  a  material  alteration  of  the  con- 
tract. On  this  point  Kelley  testified  at  the  trial  as  follows:  "The 
contract  called  for  a  building  96  feet  long  for  lower  story,  and  75 
feet  long  for  upper  story.  After  the  Webber  building  had  given 
away,  I  said  to  O'Neal:  T  wish  the  upper  story  of  my  building 
ad  been  the  same  length  as  trie  lower  story,  because  I  was  afraid 
we  would  have  the  same  trouble  they  were  having  with  the  Webber 
building.'  Mr.  O'Neal  said  it  would  only  take  a  little  extra  work, 
and  would  in  no  way  affect  the  contract  to  make  the  change.  I  told 
him  I  did  not  want  to  do  anything  that  would  change  the  contract, 
and  if  it  could  be  done  so  as  not  to  change  the  contract,  to  figure 
it  up,  and  say  how  much  it  would  cost.  He  did  so,  and  said  iji 
would  cost  me  $25,  and  I  gave  him  a  check  immediately.  The  only 
extra  work  was  the  ceiling,  flooring  and  upper  joists.  The  longi- 
tudinal walls  were  already  there,  and  I  estimated  that  $25  was  a 
reasonable  price  for  extra  work,  and  therefore  paid  it."  There  was 
a  judgment  against  the  defendants  for  the  sum  of  $500,  from  which 
the_\-  appealed. 

Riddick,  J.  (after  stating  the  facts)  :  This  is  an  action  upon  a 
bond  given  by  O'Neal  to  Kelley  for  the  performance  of  a  build- 
ing contract.  The  contract,  for  the  full  performance  of  which  the 
bond  was  executed,  required  that,  for  the  sum  of  $2,000  to  be  paid 
by  Kelley,  O'Neal  should  furnish  materials  and  erect  a  brick  build- 
ing, the  low^er  story  of  which  should  be  96  feet  long  and  14  feet 
high,  and  the  upper  story  75  feet  long  and  12  feet  high.  During 
the  progress  of  the  work,  O'Neal  contracted  with  Kelley  that,  for 
the  additional  sum  of  $25  paid  him  by  Kellev,  he  would  build  the 


, 


ALTERATION  411 


upper  story  96  feet  long  instead  of  75  feet,  as  required  by  the  orig- 
inal contract.  The  appellant  sureties  contend  that  this  alteration 
of  the  contract  discharged  them  from  further  liability  on  the  bond, 
and  we  are  of  the  opinion  that  this  contention  must  he  sustained. 
/  ''The  contract  bx  which  a  surety  becomes  bound,"  says  the  Su- 
j  \preme  Court  of  Pennsylvania,  "is  voluntary  on  his  part,  without 
(profit  or  advantage,  and  without  having  in  view  the  prospect  of  gain. 
\  It  is  anact_of  benevolence  to  the  obligor,  and  of  convenience  to  the 
J  obligee ;  and  of  emphatic  use  to  both.  The  obligations  of  social 
*■  duty  re^uirg^-there fore,  -that  he  should  be  dealt  with  in  fairness, 
/  and  in  a  spirit  of  the  utmost  good  faith.  The  obligor  and  the  obligee 
are  bound  to  know  that  if  they  find  it  convenient  to  change  or  vary  ' 
the  terms  of  the  original  contract,  they  must  seelv_theassent  of  the 
surety^-because  it  is  his  contract  as  well  astheixs^  And  if'they  will 
not  do  so,  they  take  upon  themselves  the  hazard,  and  thus  loosen 
the  bonds  of  the  surety."     Hibbs  v.  Rue,  4  Pa.  St.  348. 

Any  material  alteration  in  the  terms  of  such  a  contract  discharges 
the  surety  if  he  has  not  consented  to  the  change,  and  this  is  so  even 
if  the  alteration  be  for  the  benefit  of  the  surety;  for,  although  the 
principals  may  change  their  contract  to  suit  their  pleasure  or  con- 
venience, they  can  not  thus  bind  the  surety ;  and  as  the  new  contract 
abrogates  the  old,  the  surety  is  discharged  from  all  liability  unless 
he  has  consented  to  the  alteration.  Warden  v.  Ryan,  37  Mo.  App. 
466 ;  Judah  v.  Zimmerman,  22  Ind.  388 ;  Simonson  v.  Grant,  36 
Minn.  439;  Bethune  v.  Dozier,  10  Ga.  235;  24  Am.  &  Eng.  Enc. 
Law,  837;  2  Brandt  Suretyship,  pp.  278,  288. 

The  alteration  of  the  contract  shown  in  this  case  was  material, 
ami  therejs  nothing  tu  show  that  the  sureties  consented  thereto.    It  " 
required  that  O'Neal  should  erect  a  building  of  dimensions  differ-  \ 
ent  from  that  required  by  the  original  contract,  and  for  which  he 
was  to  receive  a  different  consideration.     It  called  for  the  erection"^ 
of  a  more  expensive  building,  but  no  extension  was  made   in  the 
tune  within  which  the  building  was  to  be  completed.     As  the  sure- 
ties  nad  undertaken  that  O'Neal  should  complete  the  building  within 
a  limited  time,  an  alteration  of  the  contract,  by  which  he  was  re- 
quired to  build  a  larger  and  more  expensive  building  within  the 
same  time,   was,   in   our   opinion,   not   only   material,   but   directly 
against  the  interest  of  the  sureties ;  and,  as  the   same   was  made 
without  their  consent,  it  clearly  operated  to  discharge  them. 

The  fact  that  Kelley  refused  to  agree  to  the  alteration  until 
O'Neal,  the  contractor,  had  assured  him  that  it  would  not  affect 
the  original  contract  is  a  matter  of  no  moment,  for  O'Neal  did  not  (J 
represent  the  sureties,  and  they  are  not  bound  by  his  opinion  on 
a  question  of  law.  Nor  does  the  fact  that  he  afterward  failed  to 
carry  out  the  contract  as  altered  affect  the  question.  It  is  the  exe- 
cution of  the  new  contract,  and  not  the  performance  thereof  that 
discharges  the  surety. 


412  SURETYSHIP   DEFENSES 

There  is  no  dispute  about  the  facts  of  this  case,  and,  after  con 
sidering  the  same,  we  are  of  the  opinion  that  the  judgment  of  the 
circuit  court  against  the  sureties  of  O'Neal  is  not  supported  by  the 
evidence.     The  judgment  as  to  them  is  reversed,  and  the  case  i 
dismissed ;  but  as  to  O'Neal  it  is  affirmed. 

See  also  Fransioli  v.  Thompson,  55  Wash.  259,  104  Pac.  278;  Reissaus  v. 
Whites,  128  Mo.  App.  135,  106  S.  W.  603 ;  Alcatraz  Mason  Hall  Assn.  v.  United 
States  Fidelity  &c.  Co.,  3  Cal.  App.  338,  85  Pac.  156;  Woodruff  v.  Schultz,  155 
Mich.  11,  118  N.  W.  579,  16  Ann.  Cas.  346. 


JONATHAN  WARDEN  ET  AL.,  RESPONDENTS,  v 
MICHAEL  RYAN,  APPELLANT 

37  Mo.  App.  466  (1889). 

Rombauer,  P.  J.,  delivered  the  opinion  of  the  court. 

The  liability  of  a  surety  depends  on  the  identity  of  the  contract 
and  its  strictissimi  juris.  If  the  contract  between  the  principals  bev 
altered  without  his  consent,  so  as  to  destroy  its  identity,  he  is  dis- 
charged, and  it  is  immaterial  whether  the  alteration  be  for  his 
benefit  or  not,  because  he  has  a  right  to  stand  upon  the  very  terms 
of  his  agreement  This  proposition  is  so  firmly  imbedded  in  the 
law  of  principal  and  surety  that  no  considerations  of  apparent 
equity  are  permitted  to  disturb  it,  however  great  the  hardships  may 
be  which,  in  individual  cases,  appeal  for  a  modification  of  the  rule. 
The  unquestioned  law,  thus  stated,  we  are  called  upon  to  apply  to 
the  undisputed  facts  of  this  case. 

The  plaintiffs  entered  into  a  written  contract  with  Francisco  and 
Sanguinet  for  the  erection  by  the  latter  of  a  building  at  an  agreed 
sum  of  fifty-five  hundred  and  sixty  dollars  to  be  paid  in  certain  in- 
stalments. The  defendant  became  the  surely  of  the  builders,  and 
bound  himself  to  the  faithful  performance  of  the  contracfby  them, 
and  to  their  delivery  of  the  building,  discharged  from  all  claims, 
liens  and  charges,  within  a  specified  time.  The  building  was  not 
delivered  within  that  time,  nor  was  it  delivered  free  from  lien 
claims.  The  plaintiffs  were  compelled. to  pay,  and  did  pay,  these 
claims,  and  thereupon  brought  the  present  action  against  the  de- 
fendant surety,  who  interposed  the  defense  that  the  original  con- 
tract had  been  altered  so  as  to  increase  the  consideration  to  be  paid 
by  the  plaintiffs  to  his  principals  for  the  erection  of  the  buildings ; 
that  thereby  a  new  contract  was  substituted  for  the  one,  for  the 
performance  of  which  he  had  become  surety ;  all  of  which  was  done 
without  his  consent. 

It  appeared  from  the  plaintiffs'  evidence  that,  within  two  days 
after  the  contract  was  signed,  Sanguinet,  one  of  the  contractors, 


(^U/^X 


* 


ALTERATION  413 


A 


accompanied  by  the  plaintiffs'  architect,  called  upon  the  plaintiffs 
and  stated  that  a  clerical  error  had  been  made  in  footing  up  ac- 
counts, and  that  they  could  not  complete  the  building  unless  the 
error,  amounting  to  six  hundred  and  fifty-nine  dollars  and  fifty 
cents,  was  rectified.  The  plaintiffs  then  agreed  to  pay  the  con- 
tractors the  additional  amount  of  six  hundred  and  fifty-nine  dol- 
lars and  fifty  cents,  making  the  contract  price  six  thousand  two 
hundred  and  nineteen  dollars.  That  this  was  the  transaction,  ad- 
mits of  no  doubt.  In  answer  to  the  question,  what  did  you  agree 
to  pay  them,  one  of  the  plaintiffs  says :  "What  the  amount  would 
be  when  the  contract  was  footed  up  correctly,  six  thousand  two 
hundred  and  nineteen  dollars."  The  other  plaintiff  says :  "They 
said  they  could  not  erect  the  building  for  that,  and  that  they  had 
made  a  mistake  in  footing  up  their  account ;  so  we  told  them  to  go 
ahead,  and  put  that  building  up  and  we  would  give  them  six  hun- 
dred dollars  in  addition." 

The  architect  took  the  written  contracts  which  had  been  executed 
in  duplicate,  and  changed  them  by  inserting  sixty-two  hundred  and 
nineteen  dollars  and  fifty  cents  as  the  consideration  to  be  paid,  and 
[by  striking  out  fifty-five  hundred  and  sixty  dollars,  and  by  making 
^corresponding  changes  in  the  instalments.  This  jie_did_  without  ex- 
press  authority  from  plaintiffs  and  without  their  knowledge.  The 
payments  of  the  various  instalments  were  subsequently  made  by  the 
plaintiffs  in  conformity  with  the  figures  inserted  by  the  architect. 
There  was  no  evidence  that  the  defendant  knew  of  this  new  agree- 
ment or  assented  thereto. 

~  All  these  facts,  appearing  in  the  plaintiffs'  evidence,  the  defend- 
ant, at  the  close  of  plaintiffs'  case,  requested  the  court  to  instruct 
the  jury  that  the  plaintiffs  could  not  recover,  which  instruction  the 
court  refused. 

The  learned  counsel  for  plaintiffs,  aware  of  the  danger  of  the 
situation,  labors  exhaustively  to  show  that  the  alteration  of  the 
written  contract  by  the  architect  was  unauthorized,  and  that  the  lia- 
bility of  the  parties,  as  dependent  on  that  instrument,  was  not 
changed,  notwithstanding  such  alteration  or  spoliation.  But  that 
argument  loses  sight  of  the  real  question  at  issue,  whether  the  work 
by  the  contractors  was  done  under  the  contract  stated  in  that  in- 
strument, or  under  a  contract  subsequently  made  of  which  the  writ- 
ten instrument  formed  only  part  ?  There  was  nothing  to  prevent  the 
principals  from  making  a  new  contract  for  themselves,  although 
they  could  make  none  for  the  defendant  without  his  consent,  and 
if  the  legal  result  of  the  plaintiffs'  act  is  equivalent  to  the  making 
of  a  new  contract,  the  mere  fact  that  they  had  no  such  intention  is 
immaterial ;  nor  could  it  be  said  that  the  new  contract  was  not  sup- 
ported by  a  consideration,  because  it  was  supported  by  the  con- 
sideration of  sixty-two  hundred  and  nineteen  dollars  and  fifty  cents 
to  be  paid  on  one  side,  and  of  the  building  of  the  house  for  that 


414  SURETYSHIP    DEFENSES 

sum  on  the  other.  That  the  contract  thus  made  is  not  identical 
with  the  contract  on  which  the  defendant  became  surety,  is  evident, 
and  the  surety's  liability  depends  on  the  identity  of  the  contract. 

An  attempt  was  made  by  plaintiff's'  counsel  to  show  that  this  ad- 
ditional six  hundred  and  fifty-nine  dollars  and  fifty  cents  was  a 
mere  gratuity  or  bonus,  and  an  instruction  was  asked  on  that  theory. 
There  is  nothing  in  the  evidence  to  support  that  view,  or  to  author- 
ize the  jurv  to  draw  that  inference  legitimately  from  anything  in 
the  plaintiffs'  evidence.  Whether  it  was  a  gratuity  depends  not  on 
the  fact  how  the  plaintiffs  viewed  it  in  their  own  minds,  but 
whether,  under  the  uncontroverted  facts,  they  were  under  a  legal 
obligation  to  pay  it,  after  they  agreed  to  pay  it.  The  contractors 
insisted  on  an  agreement  for  the  payment  of  this  additional  amount, 
owing  to  a  mistake  in  the  original  bid,  and  as  a  condition  precedent 
to  their  entering  upon  the  performance  of  the  contract  on  their 
part.  It  was  optional  with  the  plaintiffs  to  accede  to  this  demand,  J 
or  else  hold  the  contractors  to  their  original  agreement,Jmt-^yhen  /  £  f 
they  acceded  to  the  demand  and  agreed  to  pay  a  new  consideration,/  ^/ 
they  necessarily  entered  into  a  new  contract.  The  architect  by  in- 
serting this  new  consideration  into  the  contract  only  expressed  the 
true  intention  of  the  parties,  even  though  the  act  of  insertion  was 
unauthorized.  It  might  with  equal  propriety  be  said  that  if,  upon 
a  similar  demand  made  by  plaintiffs,  the  consideration  would  have 
been  reduced  instead  of  being  increased,  it  would  have  been  a  gift 
from  the  contractors  to  the  plaintiffs  in  no  way  affecting  the  liability 
to  the  surety. 

These  considerations  necessarily  lead  to  the  conclusion,  that  the 
court  erred  in  not  instructing  the  jury,  at  the  dost  of  the  plaintiffs' 
evidence,  that,  upon  the  case  made,  the  plaintiffs  could  not  recover; 
and  further  erred  in  submitting  to  the  jury  the  question  whether  the 
idditional  consideration  agreed  to  be  paid  by  plaintiffs  was  a  mere 
gratuity.  We  find  no  errors  in  other  parts  of  the  record,  but  for 
these  errors  we  are  bound  to  reverse  the  judgment,  notwithstand- 
ing the  seeming  hardship  of  the  case. 

Judgment  reversed  and  cause  remanded.     All  the  judges  concur. 

Where  the  alterations  are  trivial  and  do  not  prejudice  the  surety  he  will  not 
be  discharged.  Ganey  v.  Hohlman,  145  111.  App.  467;  Stephens  v.  Elver.  101 
Wis.  392.  77  N.  W.  737;  Segari  v.  Mazzei,  116  La.  1026.  41  Sei.  245;  Prescott 
Nat.  Bank  v.  Head,  11  Ariz.  213,  90  Pac.  328;  21  Ann.  Cas.  990;  Boppart  v. 
Illinois  Surety  Co.,  140  Mo.  App.  675,  126  S.  W.  768;  Hohn  v.  Shideler,  164 
Ind.  242,  72  N.  E.  575. 


. 


<-^ 


^,  ALTERATION  415 

BARTLETT  &  KLING,  APPELLEES,  v.  THE  ILLIX«  US 
SURETY  COMPANY,  APPELLANT 

142  Iowa  538,  119  X.  W.  729  (1909). 

Action  at  law  upon  a  bond  given  by  defendant  to  secure  the  per- 
formance of  a  contract  made  by  one  Glattfeld  with  plaintiff  for  the 
construction  of  certain  brick  and  stone  work  about  and  upon  what 
was  known_as  the  "Central  Heating  Station"  for  the  State  Agri- 
cutfurllLollege  at  Ames.  Plaintiff  claimed  something  like  $3  000 
as  owing  it  because  of  the  defaults  and  delinquencies  of  Glattfeld, 
and  in  a  supplemental  petition  asked  for  work  done  after  the  bring- 
ing of  the  suit.  Defendant  set  up  a  counterclaim  for  extra  work 
/flone  by  Glattfeld,  and  averred  that  the  original  contract,  plans  and 
specifications  had  been  orally  changed  without  its  consent  and  con- 
trary to  the  terms  of  the  original  contract,  thereby  releasing  it  from 
liability.  It  also  pleaded  a  release,  due  to  the  fact  that  plaintiff 
had  not  sued  the  principal,  Glattfeld,  within  six  months  from  the 
completion  of  the  work,  as  it  had  agreed  to  do.  The  case  was 
tried  to  a  jury,  resulting  in  a  verdict  and  judgment  for  plaintiff, 
and  defendant  appeals. 

Affirmed. 

Deemer,  J. :  Plaintiffs  are  general  contractors,  and  as  such  they 
undertook  the  erection  and  construction  of  what  was  to  be  known 
as  the  "Central  Heating  Station"  for  the  State  Agricultural  Col- 
lege at  Ames.  They  sublet  the  "brickwork,  masonry  and  bricklay- 
ing" to  one  Glattfeld,  the  contract  with  him  having  been  executed  ' 
June  26,  1906.  On  July  20,  1906,  the  bond  in  suit  was  signed  by  ' 
Glattfeld  as  principal  and  the  defendant  as  surety.  It  is  for  the 
penal  sum  of  $3,000,  and  is  conditioned  as  follows : 

The  condition  of  this  obligation  is  such  that,  whereas  the  said 
principal  has  entered  into  two  certain  written  contracts  with  said 
Bartlett  &  Kling,  for  the  doing  by  said  principal  of  taking  down  i 
and  reconstructing  and  completion  of  the  brickwork  and  the  setting 
of  the  partitions  of  construction  of  Macon  County  Infirmary,  Ma- 
con, Mo.,  under  date  of  June  6,  1906,  and  brickwork,  masonry  and  *- 
bricklaying,  including  setting  of  stone  trimmings  for  construction  , 
of    Central  Heating    Station    Building,    city    of    Ames,    Iowa,    un- 
der date  of  June  25,  1906,  now,  if  the  said  principal  shall  well  and 
truly  keep,  do,  fulfil,  and  perform  each  and  all  of  the  covenants, 
obligations,  undertakings,  conditions  and  guarantees  of  said   con- 
tracts by  said  principal  to  be  kept,   fulfilled  or  performed  and  at 
cost  to  said  Bartlett  and  Kling  as  in  said  contract  provided    for, 
then  this  obligation  to  be  void,  otherwise  to  remain  in   full   force 
and  virtue. 

The  contract  with  reference  to  the  work  at  Ames  is  very  long 


416  SURETYSHIP   DEFENSES 

and  need  not  be  set  out  in  full.  We  shall  refer  to  the  material, 
parts  by  setting  out  the  substance  thereof  or  by  excerpts  taken 
from  the  record.  Glattfeld  was  named  as  the  first  party,  and  Bart- 
lett  &  Kling  the  second,  and  it  was  promised,  among  other  things, 
that : 

Article  1.  First  party  agrees  to  furnish  all  labor  and  material, 
and  do  and  perform  all  the  work  required,  for  the  full  doing  and 
completion  of  the  brickwork,  masonry,  and  bricklaying,  including 
setting  of  stone  trimmings,  for  construction  of  Central  Heating 
Station  building  in  the  city  of  Ames,  Iowa,  all  in  full  and  strict 
accordance  with  the  present  plans  and  specifications,  and  their  re- 
quirements, including  all  work  and  material  of  character  and  kind 
above  mentioned,  that  is  required  by  said  plans  and  specifications, 
some  provision  therein  to  the  contrary  notwithstanding,  together  with 
.  all  work  and  material  specified  under  headings  in  specifications  ap- 
plicable to  work  herein  contracted  for,  and  all  that  is  ordinarily 
'done  or  furnished  by  contractors  or  workmen,  in  carrying  on  such 
work,  together  with  and  subject  to  all  changes,  alterations,  addi- 
tions, deductions  and  details,  as  herein  provided  for,  and  maintain 
same  in  place  until  fulfilment  of  this  contract.  All  of  which  first 
party  agrees  to  do  and  perform  in  good,  true,  perfect,  prompt  and 
workmanlike  manner,  and  to  satisfaction  and  acceptance  of  second 
party,  the  architect  and  owners  of  said  building,  and  all  at  the  cost 
to  second  party  as  herein  provided.  Where  the  word  "work"  oc- 
curs in  this  contract  it  shall  be  held  to  mean  and  refer  to  labor, 
work  and  material  the  same  as  though  each  time  repeated.  The 
plans  and  specifications  above  referred  to  are  same  as  are  fur- 
nished by  the  architects,  Proudfoot  and  Bird,  and  are  on  file  with 
the  college  authorities. 

Article  2.  Second  party  shall  have  the  right  to  furnish  further 
details  with  written  explanations,  to  illustrate  and  show  the  work  to 
be  done  and  furnished,  and  first  party  agrees  to  conform  to  the 
same  as  part  of  this  contract,  the  same  as  though  fully  set  out  in 
original  plans  and  specifications,  but  this  provision  shall  not  require 
second  party  to  plan  or  lay  out  any  of  first  party's  work.  Second 
party  shall  have  the  right  to  make  any  and  all  changes  in  the  work- 
called  for  by  this  contract,  plans  and  specifications,  and  in  the 
amount  of,  or  character  of,  work  to  be  furnished,  that  they  may  be 
directed  or  allowed  to  make,  by  said  architect,  or  owners,  without 
in  any  way  making  void  or  otherwise  affecting  the  provisions  or 
covenants  of  this  contract.  The  order  from  second  party  for 
such  changes,  together  with  the  price,  as  herein  provided  for,  shall 
become  a  part  of  this  contract,  and  be  complied  with  by  both  par- 
ties the  same  as  though  fully  set  out  in  original  plans,  specifica- 
tions and  contract,  and  such  changes,  the  order  for  same,  nor 
agreed  value  of  the  changes,  if  agreed  on,  shall  iri  no  manner  re- 
lieve or  release  the  sureties  on  any  bond  given  to  guarantee  this 


ALTERATION  417 

contract,  but  becoming  a  part  of  this  contract  are  covered  by  said 
bond.  The  value  of  and  agreed  cost  to  second  party  for  the  work 
furnished,  in  accordance  with  this  provision,  shall  be  in  proportion 
to  this  contract  price  for  the  work,  herein  contracted  for,  unless 
the  parties  agree  in  writing  as  to  the  value  of  such  changes,  which 
theyare  authorized  to  do,  in  which  case  all  interested  parties  shall 
be  boundTEereEy^  But  first  party  agrees  to  make  no  alterations  in 
tlTe~-wo!:k  contracted  for,  or  shown  or  described  by  the  drawings 
and  specifications,  except  upon  the  written  order  of  the  second 
party,  and  the  production,  by  first  party,  of  such  written  order, 
calling  for  work  not  already  covered  by  this  contract,  shall  be  a 
condition  precedent  to  first  party's  right  of  recovery  for  any  work 
or  material  claimed  as  extras.  This  provision  for  changes  shall 
not  be  used  so  as  to  decrease  by  more  than  one-half  the  total  amount 
of  the  work  now  contemplated  by  this  contract.  Should  first  party 
for  any  reason  not  covered  by  these  provisions  furnish  work,  labor 
or  material  of  a  poor  or  less  expensive  grade  or  kind,  or  of  less 
amount  or  value,  than  is  herein  contracted  for,  and  if  same  is  ac- 
cepted and  allowed  to  remain,  there  shall  be  deducted  from  the 
cost  to  second  party,  and  from  the  amount  otherwise  to  be  paid  to 
first  party,  such  an  amount  as  the  work  so  supplied  is  worth  to  fur- 
nish, or  should  have  cost,  less  than  the  work  herein  contracted  for. 
It  is  agreed  that  no  verbal  order,  objection,  claim  or  notice  by  either 
party  to  the  other  shall  be  of  effect  or  binding,  and  no  evidence  of 
such  order,  objection,  claim  or  notice  shall  ever  be  introduced  in 
any  suit  in  law  or  equity  wherein  these  parties  are  interested,  both 
parties  agreeing  to  execute  and  deliver  in  writing  all  communica- 
tions from  them  by  which  the  other  party  is  to  be  charged,  notified, 
or  affected,  and  when  same  are  given  verbally  they  shall  be  held  as 
not  material  or  binding,  and  none  of  the  provisions  of  this  con- 
tract, plans  or  specifications,  shall  be  held  as  not  material  or  bind- 
ing, and  none  of  the  provisions  of  this  contract,  plans  or  specifica- 
tions, shall  be  held  to  be  waived,  or  interpreted,  by  second  party, 
by  reason  of  any  act  whatsoever,  or  in  any  manner,  other  than  by 
an  express  waiver,  or  definitely  agreed  interpretation  thereof  in 
writing,  signed  and  sealed  by  second  party,  and  it  is  agreed  that  no 
evidence  shall  be  introduced  against  second  party  of  any  other 
waiver  or  interpretation.  All  work  done  or  furnished  by  first  • 
party,  and  chargeable  to  second  party,  on  said  building,  shall  be 
held  to  have  been  done  under  this  contract.    *    *    *1 

Defendant  claims  that  it  was  released  because  of  certain  changes 
made  in  the  contract,  and  it  offered  testimony  to  show  the  follow- 
ing, among  other  changes,  to  wit :    That  cement  was  omitted  and   • 
lime  used  for  mortar ;  that  mortar  color  was  entirely  omitted ;  that 

1  Part  of  excerpts  from  contract  omitted. 
27— De  Witt. 


418'  SURETYSHIP    DEFENSES 

arches  not  called  for  by  the  contract  were  put  in  over  certain  coal 
doors ;  that  a  partition  wall  was  entirely  omitted ;  that  the  height 
of  the  gables  were  increased  something  like  sixteen  inches,  and  va- 
rious other  matters,  which  it  is  claimed  were  not  covered  by  the 
plans  and  specifications.     It  also  offered  some  testimony  of  changes 
which  the  court  would  not  allow  to  go  before  the  jury  unless  de- 
fendant would   show  that   plaintiff   and    Glattfeld   agreed   thereto.. 
Plaintiff  admitted  many  of  these  changes,  but  contendecljhajj.  they 
were  authorized  by  the  contract,  and  were  in  no  manner  a  change      , 
of  the  contract  itself.     In  other,  words,  it  insisted  that  all  changes 
were  made  in  accord  with  the  provisions  of  the  contract,  and  that 
the  obligations  between  plaintiff  and  the  principal,  Glattfeld,   un- 
der the  contract  were  in  no  manner  changed.     The  trial  court  sub- 
mitted the  question  of  change  of  contract  to  the  jury,  but  differ- 
entiated between  changes  of  contract  and  change  in  manner  of  do-, 
ing  the  work  under  the  contract.     Turning  to  the  contract,  it  willj 
be  observed  that  it  expressly  provides  that  changes  may  be  made,/  . 
and  that  such  changes,  if  agreed  upon,  should  in  no  manner  relieve/  h 
or  release  the  sureties  on  any  bond  given  to  guarantee  the  contract]    ^f 
That  such  a  provision  is  valid  we  have  no  doubt.     See  Bartlett  v( 
Stanchfield,  148  Mass.  394  (19  N.  E.  549,  2  L.  R.  A.  625)  ;  CW 
saul  v.  Sheldon,  35  Nebr.  247  (52  N.  W.  1104)  ;  Northern  Light  Co. 
v.  Kennedy,  7  N.  D.  146  (73  N.  W.  524)  ;  Abbott  v.  Gatch,  13  Aid. 
314  (71  Am.  Dec.  635). 

But  defendant  strenuously  insists  that,  while  as  between  Glatt- 
feld and  Bartlett  &  Kling  they  might  under  the  contract  make  any 
changes  they  chose,  they  could  not  make  these  changes  orally  with- 
out releasing  the  defendant  as  surety.  In  other  words,  its  insist- 
ence is  that  any  change  made  in  the  contract,  or  in  the  manner  of 
doing  the  work  not  made  by  written  order  of  Bartlett  &  Kling,  re- 
Av  leased  it  from  liability.  This  presents  the  most  troublesome  question 
in  the. case.  As  a  general  proposition  we  would  agree  with  defendant 
that  a  change  in  the  manner  of  the  doing  of  work  under  a  contract 

,  amounted  to  a  change  of  the  contract.  But  as  the  contract  in  ques- 
tion authorized  the  making  of  any  and  all  changes  in  the  work 
called  for  by  the  contract,  plans  and  specifications,  the  trial  court 
committed  no  error  in  submitting  to  the  jury  the  question  of  change 
in  work  as  distinguished  from  change  in  contract,  and  left  it  to  the 
jury  to  say  whether  or  not  there  was  any  change  in  the  contract 
itself, 

Reverting  now  to  the  manner  in  which  the  changes  should  be 
made,  and  whether  or  not  the  surety  is  released  in  the  event  we  find  , 
that  there  were  changes  made  in  the  work  without  the  written  or- 
der of  Bartlett  &  Kling,  we  are  constrained  to  hold  that  the  pro-/ 
vision   for  the  written  order,  while   for  the  benefit  and  protection^ 

\  of  both  parties,  did  not  in  any  way  prevent  oral  direction  for 
changes.     Without  the  written  order  for  a  change  Glattfeld  could 


ALTERATION  419 

not  recover  any  increased  compensation  because  of  extra  work  or 
material.  Article  2  of  the  contract  provides  for  changes  in  the 
work  called  for  by  contract,  plans  and  specifications  that  may  be 
directed  or  allowed  by  the  owner  or  architect  without  in  any  man- 
ner making  void  or  affecting  the  provisions  of  the  contract,  and 
that  such  changes,  the  order  for  the  same,  or  the  agreed  value  of 
the  changes  agreed  upon  should  not  in  any  manner  relieve  or  re- 
lease the  sureties  on  any  bond  given  to  guarantee  the  contract. 
There  is  nothing  contrary  to  law  or  public  policy  in  this,  and  no 
reason  for  not  restricting  and  enforcing  the  provision.  The  first 
party  agreed  to  make  no  changes  or  alterations  in  the  work  except 
upon  written  order  of  Bartlett  &  Kling;  and,  as  a  condition  prece- 
dent to  a  right  of  recovery  for  any  work  or  material  claimed  as 
extra,  he  (Glattfeld)  was  required  to  produce  such  written  order 
from  Bartlett  &  Kling.  Again  it  was  provided  that  all  work  done 
or  furnished  by  Glattfeld  and  chargeable  to  Bartlett  &  Kling  on 
said  building  should  be  held  to  have  been  done  under  the  contract. 
Alterations  and  changes  in  the  contract  were  allowed  ad  libitum, 
.provided  they  were  directed  or  allowed  by  the  owner  or  architect. 
L^iL-Glaitie-k4—could  not  make  them  without  a  written  order,  nor 
could  he  recover  anything  as  extras  without  producing  this  written 
order.  It  was  for  Glattfeld  to  get  the  written  order  if  he  desired 
authority  to  make  the  change  on  his  own  motion,  and  in  no  event  / 
could  he  recover  any  extra  compensation  without  producing  the 
order.  The  order  was  for  his  benefit,  and  while  the  parties  them-' 
selves  might  make  verbal  changes  which  under  the  contract  would 
be  binding  upon  all,  Glattfeld  could  not  recover  anything  therefor 
without  the  production  of  the  written  order.  Did  a  verbal  change 
in  the  work,  without  a  written  order  from  Bartlett  &  Kling,  release 
the  defendant?  That  is  the  pivotal  question  in  the  case.  If  the 
contract  had  provided  that  no  changes  could  be  made  except  in 
writing  or  by  written  order,  we  should  be  inclined  to  hold  that 
verbal  change,  although  valid  and  en  forcible  between  the  parties, 
would,  if  carried  out,  release  the  sureties.  See,  as  supporting  this 
view,  Abbott  v.  Gatch,  13  Md.  314  (71  Am.  Dec.  635)  ;  Village  of 
Chester  v.  Leonard,  68  Conn.  495  (37  Atl.  397)  ;  Consaul  v.  Shel- 
don, 35  Nebr.  247  (52  N.  W.  1104)  ;  Bartlett  v.  Stanchfield,  148 
Mass.  394  (19  N.  E.  549,  2  L.  R.  A.  625)  ;  Northern  Co.  v.  Ken- 
nedy, 7  N.  D.  146  (73  N.  W.  524)  ;  Havden  v.  Cook,  34  Nebr. 
670  (52  N.  W.  165)  ;  Ritchie  v.  State,  39  Wash.  95  (81  Pac.  79)  ; 
Erickson  v.  Brandt,  53  Minn.  (55  N.  W.  62)  ;  Risse  v.  Mill  Co.,  55 
Kans.  518  (40  Pac.  904). 

It  is  true,  of  course,  that  [Sureties  on  a  bond  to  secure  the  per- 
formance of  a  building  contract  are  discharged  by  any  substantial 
change  or  alteration  of  the  plan  of  work,  unles>  the  right  to  make 
such  change  or  alteration  is  expressly  given  in  the  bond  itself,  or 
in  the  contract  which  it  secures.     Morgan  Co.  v.  McRae  et  al.,  53 


420 


SURETYSHIP    DEFENSES 


Kans.  358  (36  Pac.  717)  ;  United  States  v.  Freel,  186  U.  S.  309  (22 
Sup.  Ct.  875,  46  L.  eel.  1177),  and  cases  cited.  And  in  this  con- 
nection it  is  entirely  immaterial  that  the  surety  enters  into  his  ob- 
ligation for  pay.  Lonergan  v.  San  Antonio  Co.  (Tex.),  104  S.  W. 
1061.  But  the  surety  may  by  his  contract  consent,  in  advance,  to 
any  changes  or  alterations  which  may  be  made  in  the  character  of 
the  work,  or  in  the  manner  of  doing  it.  Hohn  v.  Shideler,  164 
Ind.  242  (72  X.  E.  575)  ;  Cowles  v.  Guaranty  Co.,  32  Wash.  120 
(72  Pac.  1033,  98  Am.  St.  838)  ;  Pac.  Co.  v.  Guaranty  Co.,  33 
Wash.  47  (73  Pac.  772)  ;  Grafton  v.  Hinkley,  111  Wis.  46  (86  N.. 
W.  859)  ;  Smith  v.  Molleson,  148  N.  Y.  241  (42  N.  E.  669).  Most 
of  these  cases  hold  that,  even  if  there  be  a  provision  for  a  written  or- 
der, as  in  the  case  at  bar,  change  in  the  manner  of  doing  the  work, 
or  alteration  of  plans,  without  written  order  will  not  release  the 
surety.  This  is  especially  true  where  the  changes  do  not  materially 
alter  the  contract  price  of  the  cost  of  the  building.  Many  cases 
hold  that,  even  with  such  provision  as  we  find  in  this  contract  as  to 
alteration  or  change  of  plans  and  manner  of  doing  the  work,  the 
changes  or  alterations  which  may  be  made  without  releasing  the 
sureties  are  those  which  do  not  materially  affect  the  undertakings 
of  the  contractor;  that  if  the  work  is  substantially  changed  without 
the  written  order  referred  to,  or  even  with  such  order,  the  surety 
is  released.  See  House  v.  Am.  Surety  Co.,  21  Tex.  Civ.  App.  590 
(54  S.  W.  303)  ;  Miller  v.  Ft.  Smith  Co.,  66  Ark.  287  (50  S.  W. 
508)  ;  Erfurth  v.  Stevenson,  71  Ark.  199  (72  S.  W.  50).  In  one 
of  these  cases  it  is  said  that  the  alterations  which  may  be  made  with- 
out discharging  the  surety  are  such  minor  ones  as  owners  often  wish 
to  make  in  the  plan  of  the  buildings  which  are  under  construction, 
and  which  do  not  greatly  affect  the  undertakings  of  the  contractor. 
See  also  Consaul  v.*  Sheldon,  supra.  Some  of  the  cases  go  to  the  ex- 
tent of  holding  that  the  provision  as  to  the  written  order  is  for  the 
benefit  of  the  surety,  and  that  any  change,  whether  of  benefit  or  ad- 
vantage to  the  principal  in  the  bond  made  without  a  written  order, 
will  release  the  surety.  Of  these  are  Burnes  v.  Deposit  Co.,  96  Mo. 
App.  467  (70  S.  W.  518)  ;  Evans  v.  Graden,  125  Mo.  72  (28  S.  W. 
439)  ;  Lumber  Co.  v.  Gates,  89  Mo.  App.  201 ;  and  Beers  v.  Wolf, 
116  Mo.  179  (22  S.  W.  620).  These  cases  seem  to  be  in  the 
minority,  and  after  all  the  pivotal  question  is  the  construction  of 
the  contracts  and  agreements  between  the  parties. 

Going  back  now  to  the  contract,  we  are  constrained  to  hold  that 
the_defendant  consented  to  all  changes  as  were  made  in  the  man- 
ner of  doing  the  work,  and  that  the  provision  for  the  written  order 
was  for  the  protection  of  the  plaintiff,  and  that  they  might  waive 
the  same  without  releasing  the  surety  company.  See,  as  support- 
ing this  view,  Smith  v.  Molleson,  148  N.  Y.  241  (42  N.  E.  569)  ; 
DeMattos  v.  Jordan,  15  Wash.  378  (46  Pac.  402).  Moreover, 
Glattfeld,  the  principal  on  the  bond,  agreed  that  he  would  make  no 


ALTERATION  421 


changes  without  the  written  order,  and  the  surety  company,  defend- 
ant herein,  promised  that  Glattfeld  would  perform  all  the  obliga- 
tions of  the  contract  on  his  part.  Manifestly  the  surety  can  not 
rely  upon  a  default  of  the  principal  which  it  promised  he  would 
not  make.  It  is  not  too  much  to  say  that  the  changes,  if  any  were 
made,  were  not  such  as  entitled  Glattfeld  to  additional  compensa- 
tion, and  for  that  reason  he  did  not  insist  upon  the  written  order 
therefor.  He  might  waive  this  requirement  as  to  a  written  order, 
and  we  are  inclined  to  the  view  that 'a  written  order  was  not  re- 
quired, save  where  the  contractor  was  of  the  opinion  that  the 
changes  and  alterations  were  such  as  entitled  him  to  additional  com- 
pensation. Surely  he  could  not  claim  anything  for  extras  without 
this  written  order,  unless  he  was  able  to  show  a  distinct  and  inde- 
pendent contract  therefor.  This  is  the  rule  announced  in  the  Bart- 
lett  case,  supra,  and  we  believe  it  to  be  sound.    *    *    *2 

Having  considered  the  controlling  points  in  the  case,  and  finding 
no  prejudicial  error,  we  reach  the  conclusion  that  the  judgment 
should  be,  and  it  is,  affirmed. 


ERFURTH  v.  STEVENSON 
71  Ark.  199,  72  S.  W.  49  (1903). 

Battle,  J. :  On  the  4th  day  of  April,  1898,  Erfurth  &  Seibert 
entered  into  a  written  contract  with  E.  H.  Stevenson,  by  which  they 
agreed  to  erect  and  construct  for  him  a  two-story  brick  residence, 
with  a  stone  foundation  and  roof  covered  with  Oregon  cedar  shin- 
gles, "except  foundation,  cut  stone,  brick  work,  plastering,  painting, 
plumbing  and  trimming  hardware,"  in  a  good  and  substantial  and  ' 
workmanlike  manner;  and  Stevenson  agreed  to  pay  them  there- 
for the  sum  of  $2,670;  and  it  was  agreed  that  no  sum  exceeding 
seventy-five  per  cent,  of  the  value  of  work  done  and  materials 
furnished  and  used  should  at  any  time  be  paid  to  them  before  they 
fully  complied  with  and  performed  their  contract.  A  provision  for 
alterations  in  the  building  was  made  in  the  contract  as  follows : 

"Article  13.  That  the  party  of  the  first  part,  through  his  archi- 
tect, may  require  alterations  to  be  made  in  the  construction,  ar- 
rangement or  finish  of  the  work  from  that  herein,  and  in  said 
specifications,  plans  or  drawings,  expressed,  without  annulling  or 
invalidating  this  agreement  in  any  particular,  and  in  case  of  any 
such  alterations  the  increase  or  diminution  of  expense  occasioned 
thereby  shall  be  added  to  or  taken  from  the  contract  price  of  the 
entire  work ;  and  that  a  description  of  the  changes  so  to  be  made, 
together  with  the  expenses  of  making  the  same,  shall  be  attached 

2  Part  of  opinion  omitted. 


SURETYSHIP    DEFENSES 


>' 


to  this  agreement  before  said  changes  are  executed,  or  otherwise 
shall  not  be  binding  on  said  first  party.  And  it  is  further  agreed 
that,  in  case  the  parties  hereto  can  not  agree  as  to  the  amount  to  be 
added  to  or  taken  from  the  contract  price  of  the  entire  work;  and 
that  a  description  of  the  changes  so  to  be  made,  together  with  the 
expenses  of  making  the  same,  shall  be  attached  to  this  agreement 
before  said  changes  are  executed,  or  otherwise  shall  not  be  binding 
on  said  first  party.  And  it  is  further  agreed  that,  in  case  the  par- 
ties hereto  can  not  agree  as  to  the  amount  to  be  added  to  or  de- 
ducted from  the  said  contract  price  on  account  of  the  contemplated 
change,  then  and  in  such  case  the  party  of  the  first  part  shall  have 
the  right  under  this  contract  to  have  other  than  the  second  party 
(Erfurth  &  Seibert)  execute  such  changes  during  the  progress  of 
the  building  and  work  aforesaid." 

On  the  4th  of  April,  1898,  the  same  day  on  which  the  contract 
was  executed,  Erfurth  &  Seibert,  as  principals,  and  John  Schaap 
and  S.  A.  Williams,  as  sureties,  executed  a  bond  to  E.  H.  Steven- 
soti,  and  thereby  bound  themselves  to  him  in  the  sum  of  $2,670; 
conditioned  that,  if  Erfurth  &  Seibert  should  perform  their  contract 
with  Stevenson,  the  same  should  be  void. 

On  the  7th  day  of  May,  1898,  Stevenson  and  Erfurth  &  Seibert 
agreed  in  writing  as  to  certain  changes  in  the  said  building,  as 
follows : 

"May  7,  1898.  It  is  hereby  agreed  that  all  roofs  and  gables  shall 
be  covered  with  7x14  best  quality  black  Bangor  slate,  with  all  hips 
connected  and  made  tight  (instead  of  being  covered  with  Oregon 
cedar  shingles,  as  set  out  in  the  specifications).  All  slate  shall  be 
laid  on  heavy  tar  felt,  and  all  sheathing  shall  be  No.  1  com.  M.  D. 
with  all  defects  cut  out,  thoroughly  seasoned,  close  joint  and  dou- 
ble nailed  at  each  heaving  with  lOd  wire  nails.  All  tin,  galvanized 
iron  and  zinc  work  (conductor  supports  coppered)  shall  be  made 
of  102  Z  copper  instead  of  tin,  galvanized  iron  and  zinc  as  speci- 
fied in  specifications  (except  floor  of  balcony,  which  shall  be  of 
tin  as  specified)  and  all  work  and  materials  subject  to  the  approval 
of  the  architect. 

(Seal.)         .     "E.  H.  Stevenson,  Party  First  Part. 
(Seal.)  "Erfurth  &  Seibert,  Party  Second  Part." 

On  the  9th  day  of  September,  1899,  Stevenson  commenced  this 
action  against  Erfurth  &  Seibert,  Schaap  and  Williams,  on  their 
bond;  and  Schaap  and  Williams  answered,  and  stated  that  they 
were  sureties  on  the  bond,  and  had  been  released  from  their  ob- 
ligations by  the  changes  made  in  the  original  contract  without  their 
consent.  #  ^ 

In  the  trial  that  followed  it  was  proved  that  the  changes  in  the 
contract  were  made  without  the  consent  of  the  sureties,  and  there 
was  no  evidence  to  the  contrary,  unless  the  original  contract  was 


ALTERATION  423 

evidence  of  such  consent ;  and  that  they  (the  changes)  were  not 
within  the  contemplation  of  the  parties  at  the  time  the  original 
contract  was  entered  into  is  shown  by  the  testimony  of  Goddard, 
the  architect  who  drew  the  plans  and  specifications  for  the  build- 
ing, and  superintended  the  erection  of  the  same.  He  testified  as 
follows :  "At  the  time  we  were  receiving  estimates  on  Dr.  Ste- 
venson's house  for  the  construction  of  it,  it  was  contemplated  to 
use  slate  for  the  roof,  but,  owing  to  the  fact  that  we  knew,  of 
course,  it  would  cost  some  more  to  use  slate,  *  *  *  Dr.  Ste- 
venson decided  that  we  would  make  the  specifications  to  read  shin- 
gles, raised  tin  and  galvanized  iron ;  and  asked  some  of  the  con- 
tractors— in  fact,  all  of  them — to  submit  the  amount  extra  it  would 
cost  to  use  slate  and  copper  instead  of  shingles,  tin  and  galvanized 
iron  for  the  roof.  Some  of  them  did  so,  and  some  of  them  did  not." 
It  was  proved  that  Erfurth  &  Seibert  drew  orders  on  Stevenson 
the  9th  and  10th  days  of  February,  1899,  for  the  amounts  due  for 
work  done  and  materials  furnished  to  complete  the  building  ac- 
cording to  the  alterations  made  in  the  original  contract,  and  that 
Schaap  and  Williams  indorsed  their  approval  upon  the  same.  God- 
dard, the  architect,  testified  that  their  approval  was  required  be- 
cause Stevenson  had  paid  Erfurth  &  Seibert  more  than  seventy-five  " 
per  cent,  of  the  value  of  the  work  done  and  materials  furnished 
at  the  time  the  orders  were  drawn ;  and  the  sureties  testified  that 
they  indorsed  their  approval  because  they  were  informed  that  Ste-  a 
venson  would  not  pay  the  orders  without  it. 

Plaintiff  recovered  judgment,  and  the  defendants  appealed. 
)  -\      Were  John  Schaap  and  S.  A.  Williams,  sureties  on  the  bond  of 
s  Erfurth  for  the  performance  of  their  contract  to  erect  a  building 
4    for  E.  H.  Stevenson,  discharged  by  the  alteration  of  the  contract? 
In  O'Neal  v.  Kelley,  65  Ark.  550,  this  court  held  that  any  mate- 
rial alteration  in  the  contract  for  the  performance  of  which  a  surety 
is  bound,  without  his  consent,  discharges  the  surety,  and  that  "this 
is  so,  even  if  the  alteration  be  for  the  benefit  of  the  surety ;  for, 
although  the  principals  may  change  their  contract  to  suit  their  plea- 
sure or  convenience,  they  can  not  thus  bind  the  surety." 

In  Miller-Jones  Furniture  Co.  v.  Fort  Smith  Ice  and  Cold 
Storage  Co.,  66  Ark.  287,  one  Wickshire  contracted  with  the  ap- 
pellee to  build  for  it  a  one-story  brick  house,  and  to  complete  the 
same  on  or  before  the  14th  day  of  October,  1895.  The  contract  < 
contained  the  following  stipulation :  "It  is  further  agreed  that  the 
said  party  of  the  second  part  may  make  any  alterations,  deviations, 
additions  or  omissions  from  the  aforesaid  plans,  specifications  and 
drawings,'  or  either  of  them,  which  they  shall  deem  proper,  and 
the  said  architect  shall  advise,  without  affecting  or  making  void 
this  contract ;  and  in  all  such  cases  the  architect  shall  value  or  ap- 
praise such  alterations  and  add  to  or  deduct  from  the  amount  here- 
tofore agreed  to  be  paid  to.  the  said  party  of  the  first  part  the  excess. 


424  SURETYSHIP   DEFENSES 

or  deficiency  occasioned  by  such  alterations."  "Wickshire  gave  bond 
for  the  performance  of  his  contract,  with  the  Miller-Jones  Furni- 
ture Company  as  surety.  He  afterwards,  about  the  1st.  of  Octo- 
ber, 1895,  made  a  supplemental  contract  with  the  cold  storage 
company  by  which  he  agreed  to  make  the  building  two  stories 
high,  instead  of  one,  and  was  to  receive  an  additional  consideration 
of  $1,175."  This  court  held  that  the  surety  was  discharged  by  the 
alterations  made.  Mr.  Justice  Riddick,  in  delivering  the  opinion 
of  the  court,  said:  "The  cold  storage  company  contends  that  the 
-  supplemental  contract  did  not  discharge  the  surety,  for  the  reason 
that  such  supplemental  contract  was  within  the  scope  of  the  first 
contract,  and  was  therefore  assented  to  by  the  furniture  company 
at  the  time  it  signed  the  bond.  This  contention  of  the  cold  storage 
company  is  based  on  a  provision  in  the  original  contract  permitting 
the  owner  to  make  alterations  in  the  plans  and  specifications  of 
the  building.  But  we  are  of  the  opinion  that  the  parties  did  not 
intend  by  this  provision  to  authorize  changes  so  extensive  as  the 
one  complained  of  here.  The  provision  referred  to,  which  is  set 
out  in  the  statement  of  facts,  permits  such  alterations  to  be  made, 
even  without  the  consent  of  the  contractor,  and  provided  that  the 
architect  shall  determine  the  amount  to  be  paid  or  deducted  there- 
for. We-ean  not  suppose  that  the  parties  intended  by  this  provi-. 
'sion  to  permit  the  owner  to  make  great  and  extensive  changes  in 
the  plan  of  the  building  and  to  force  the  contractor  to  complete  it 
in  conformity  therewith,  at  such  compensation  as  might  be  allowed 
by  the  architect.  The  fact  that  these  alterations  in  the  plan  could 
be  made  without  the  consent  of  the  contractor  forces  us  to  the 
conclusion  that  the  alterations  referred  to  were  such  minor  changes 
as  owners  often  wish  to  make  in  the  plan  of  buildings  while  they 
are  under  construction,  and  which  do  not  greatly  affect  the  under- 
takings of  the  contractor. 

In  Consaul  v.  Sheldon  (Nebr.),  52  N.  W.  1104,  1107,  cited  by 
the  court  in  Miller-Jones  Furniture  Company  v.  Fort  Smith  Ice 
and  Cold  Storage  Company,  it  is  said :  "A  number  of  changes  and 
alterations  were  made  in  the  buildings,  which  increased  the  cost 
thereof,  after  the  letting  of  the  contract  and  the  signing  of  the 
bond.  But  such  changes  and  alterations  did  not  have  the  effect  to 
release  and  discharge  the  sureties,  for  the  reason  the  contracts  ex- 
pressly provided  that  the  owner  might  make  alterations  in  the  plans 
of  the  building,  and  that  the  making  of  the  same  should  not  release 
the  sureties.  Each  contract  contained  this  stipulation :  'Should  the 
proprietor,  at  any  time  during  the  progress  of  the  work,  require 
any  alterations  of,  deviations  from,  or  additions  in  the  said  con- 
tract, specifications,  or  plans,  he  shall  have  the  right  and  power 
to  make  such  change  or  changes,  and  the  same  shall  in  no  way  in- 
juriously affect  or  make  void  the  contract.'    This  provision  was 


ALTERATION  425 

ample  authority  for  all  changes  and  alterations  which  were  made 
in  the  buildings.  We  must  not  be  understood  as  claiming  that  the 
owner  had  the  right  to  make  such  changes  as  he  saw  proper,  re- 
gardless of  the  cost  and  the  character  and  extent  of  such  altera- 
tions. The  changes  and  additions  must  be  reasonable,  and  not  ma- "^ 
teriajly_increiise_the  costs  of  the  buildings  beyond  the  original  con- 
tract price." 

In  the  contract  before  us,  Stevenson,  for  whom  the  building  was 
to  be  erected,  was  vested  with  the  power  to  require  alterations  to 
be  made  in  the  construction  of  the  building  and  in  the  arrangement 
or  finish  of  the  work,  as  specified  in  the  contract  and  specifications, 
plans  and  drawings  referred  to  therein.  He  could  do  so  without 
the  consent  of  the  contractors,  Erfurth  &  Seibert.  But  they  were 
not- compelled  to  do  the  additional  work,  or  furnish  the  materials 
made  necessary  by  the  alterations.  If  they  refused  to  do  so,  or 
failed  to  agree  with  Stevenson  as  to  price,  the  contract  provided 
that  Stevenson  might  employ  other  parties  to  do  such  work  and 
furnish  the  materials.  But  nevertheless,  as  said  in  Miller-Jones 
Furniture  Co.  v.  Fort  bmith  Ice  and  Cold  Storage  Co.,  "the  fact  ; 
that  these  alterations  *  *  *  could  be  made  without  the  consent 
of  the  contractors  forces  us  to  the  conclusion  that  the  alterations 
referred  to  were  such  minor  changes  as  owners  often  wish  to  make 
in  the  plan  of  the  buildings,  while  they  are  under  construction,  and 
which  do  not  greatly  affect  the  undertakings  of  the  contractor."  _ 
Any  other  construction  of  the  contract  would  place  the  contractors 
in  the  position  of  agreeing  that  alterations  might  be  made  in  their 
contract  which  would  be  materially  injurious  to  them,  which  would 
be  unnatural  and  unreasonable. 

The  right  to  make  the  alterations  that  were  made  in  the  contract 
depends  upon  the  following  clause :  "The  party  of  the  first  part 
(Stevenson),  through  his  architect,  may  require  alterations  to  be 
made  in  the  construction,  arrangement  or  finish  of  the  work  from 
that  herein,  and  in  said  specifications,  plans  or  drawings,  expressed." 
The  alterations  made  were  not  in  the  arrangement  or  finish  of  the 
work,  as  they  consisted  entirely  of  a  change  of  materials.  Were 
they  made  in  the  construction?  In  the  construction  of  what?  A 
two-story  brick  residence,  with  stone  basement,  and  with  roof  cov- 
ered with  Oregon  cedar  shingles.  Did  Stevenson  have  the  right 
to  so  alter  the  contract  as  to  substitute  a  residence  of  granite  for 
the  brick  residence?  Certainly  not.  Why,  then,  could  he  substitute 
a  slate  for  a  shingle  roof?  Such  a  change  would  not  be  in  the 
construction  of  a  shingle  roof7~whicfi  the  contractors  agreed  to 
make,  but  a  substitute  for  it,  which  was  not  authorized  by  the 
contract.  The  evidence  shows  that  such  was  not  the  intention  of 
the  contract.  Stevenson,  the  party  of  the  first  part,  had  under  con- 
sideration, before  entering  into  the  contract  with  Erfurth  &  Sei- 


426  SURETYSHIP    DEFENSES 

bert,  the  building  of  a  residence  with  a  slate  roof,  but  abandoned 
it  because  it  was  too  expensive,  and  decided  to  use  Oregon  cedar 
shingles  instead  of  slate. 

The  price  which  the  contractors,  Erfurth  &  Seibert,  were  to  re- 
ceive for  the  building  under  their  contract  with  Stevenson,  before 
it  was  altered,  was  $2,670,  and  the  alterations  were  worth  and  cost 
at  least  $320,  which  increased  the  cost  more  than  eleven  per  cent. 
The  changemade  in  the  building  by  the  amended  contract  mate-  ( 
rially  Increased  the  cost  of  it  beyond  the  original  contract  price, 
ancL_if  binding  on  the  sureties  on  the  contractor's  bond,  increased/ 
their  liability  to  the  same  extent.  But  the  change  was  unauthorized 
by  the  original  contract,  and  was  made  without  the  consent  of  the 
sureties,  and  discharged  them  from  liability  on  their  bond. 
Tut  appellee  insists  that,  if  the  sureties  on  the  contractor's  boiiU 

'  were  relieved  from  their  obligation  by  the  alteration  in  the  original 
contract,  they  are  estopped  from  taking  advantage  of  it  by  the  in- 
dorsement of  their  approval  upon  the  orders  drawn  by  Erfurth  & 
Seibert  on  Stevenson  for  the  amount  due  for  labor  performed  and 
materials  furnished  according  to  such  alterations.    They  disavowed 

'.  any  intention  to  approve  the  alteration  of  the  contract  by  the  ap- 
proval of  the  orders,  but  contend  that  the  object  of  their  approval 

•  was  to  relieve  Stevenson  from  his  contract  to  withhold  from  the 
contractors  twenty-five  per  cent,  of  the  contract  price  until  they 
fully  and  completely  performed  their  part  of  the  original  contract. 
The  alterations  in  the  original  contract  were  made,  without  the 
consent  of  the  sureties,  on  the  7th  of  May,  1898,  and  released 
them  from  their  obligation.  Their  approval  of  the  orders  was  in- 
dorsed thereafter  on  the  9th  or  10th  of  February,  1899,  and  there- 
fore could  not  have  induced  Stevenson  to  change  his  position  in 
respect  to  his  liability  for  the  amounts  paid  by  him  on  the  orders 
of  Erfurth  &  Seibert.  He  was  already  bound  to  pay  for  the  work 
done  and  materials  furnished  according  to  the  contract  as  altered. 
His  position  in  that  respect  could  not  have  been  changed  by  the 
approval  of  the  orders  of  Erfurth  &  Seibert  by  the  sureties ;  and 
they  are  not  thereby  estopped  from  setting  up  their  discharge  from 
liability  to  Stevenson  as  such.  Miller-Jones  Furniture  Co.  v.  Fort 
Smith  Ice  and  Cold  Storage  Co.,  66  Ark.  287. 

The  judgment  of  the  court  below  against  the  sureties  is  reversed, 
and  as  to  Erfurth  &  Seibert  it  is  affirmed.  Judgment  upon  the 
merits  will  be  rendered  here  against  the  appellee  in  favor  of  the 
sureties. 

Accord:    Barrett-Hicks  Co.  v.  Glas,  9  Cal.  App.  491,  99  Pac.  856;  United i 
States  v.  Freel,  186  U.  S.  309,  46  L.  ed.  1177. 


ALTERATION  .  427 


CALVERT  v.  THE  LONDON  DOCK  COMPANY 


2  Keen  638  (1839). 


in 


The  following  were  the  circumstances  of  the  case : — By  contract, 
writing,  dated  the  29th  day  of  September,  1829,  Robert  Streather,  if.   p 


a  builder,  agreed  with  James  Warre,  the  treasurer  of  the  London 
dock  company,  on  behalf  of  the  company,  to  perform  certain  works, 
which  were  to  be  commenced  twenty  days  after  notice,  and  to  be 
completed  in  twelve  months  from  the  commencement.  Streather 
was  to  provide  all  materials  and  labor,  in  consideration  of  52,200£., 
and  being  allowed  to  appropriate  certain  materials  mentioned ;  the 
engineer  of  the  company  was  to  be  the  sole  judge  of  the  works,  and 
was  to  employ  competent  persons  to  perform  the  works,  if  Streather 
failed  to  do  so;  and  in  that  case,  the  costs  thereof  were  to  be  de- 
ducted from  the  sum  to  become  due  to  Streather  under  the  contract : 
a  provision  was  made  for  varying  the  price,  on  any  variation  being 
made  in  the  work  specified  in  the  contract;  and  Mr.  Warre,  for 
the  company,  agreed  to  pay  the  52,200£.  by  installments ;  vis.,  three- 
fourths  of  the  cost  of  the  work  certified  to  be  done  every  two 
months,  and  the  remaining  one-fourth  after  the  full  completion 
of  the  contract. 

On  the  3d  of  November,  1829,  Streather,  and  Warburton,  and  / 
Laycock,  as  his  sureties,  executed  to  James  Warre,  as  treasurer 
of  the  company,  their  joint  and  several  bond  for  the  sum  of  5,000£., 
conditioned  to  be  void,  if  Streather  should  well  and  truly  observe, 
perform,  and  keep,  the  promises  and  agreements  contained  in  the 
contract,  which,  on  the  part  of  Streather,  were  and  ought  to  be 
performed,  according  to  the  true  intent  and  meaning  of  the  con- 
tract. 

Notice  having  been  given,  Streather  commenced  the  works  on  the 
28th   of    December,    1829,   but    did   not    complete   them    in    twelve 
months,  or  before  the  28th  of  March,  1831,  to  which  day  the  time  ' 
for  completing  the  works  was  enlarged,  with  the  consent  of  War- 
burton  and  Laycock. 

i     The  time  having  expired,  the  London  Dock  Company  gave  notice 
to  the  sureties  that  they  would  be  called  upon  to  pay  the  5,000£.  "* 
under  bond. 

Under  these  circumstances  the  plaintiffs  filed  their  bill ;  and 
after  alleging  that  the  referee  in  the  action  against  the  company 
had  stated  that  although  the  payments  made  to  Streather  amounted 
to  49,619£.,  the  value  of  the  work  done  by  Streather  was  only 
36,429£,  they  charged  that,  in  executing  the  bond,  the  sureties 
considered,  and  had  a  right  to  consider,  that  the  company,  until 
the  entire  performance  of  the  contract,  would  have  retained  in 
their  hands  so  much  of  the  contract  price  as  by  the  contract  they 


428 


SURETYSHIP    DEFENSES 


were  entitled  to  retain  as  a  security   for  the  performance  of  the  I 
rest  of  the  contract;  and  that  by  advancing  to  Streather  more  than/ 
they  were  bound  to  do,  the  company  deprived  the  plaintiffs  of  the/ 
benefit  of  that  security,  and  thereby,  in  equity,  released  them  fronj 
the  bond;  or  at  least,  could  not  equitably  recover  against  the  plain- 
tiffs any  loss   which  they   might   have   sustained  by   making   sxic\\ 
advances ;  and  ought  not  to  be  permitted  to  sue  the  plaintiffs  on  the 
bond,  for  if  they  had  not  made  such  advances  they  would  not  have 
sustained  any  loss  by  the  nonperformance  of  the  contract. 

The  common  injunction,  for  want  of  answer,  was  obtained,  and 
no  motion  was  made  either  to  dissolve  it,  or  to  extend  it  to  stay 
trial. 

It  was  now  asked  that  the  common  injunction  which  has  been 
granted  might  be  made  perpetual,  and  that  the  defendants  might 
pay  the  costs  of  suit.* 

THE  MASTER  OF  THE  ROLLS  (after  stating  the  case)  pro- 
ceeded : — The  defendants  do  not  dispute  the  fact  that  their  advances 
to  Streather  exceeded  the  sums  which  they  were  bound  to  advance 
under  the  contract,  but  they  say  that  the  increased  advances  were 
made  for  the  purpose  of  giving  Streather  greater  facility  to  per- 
form the  contract.  It  is  said  that  the  performance  of  the  work  by 
Streather  was  impeded  by  his  want  of  funds ;  and  that  by  the  ad- 
vances made  to  him  he  was  enabled  to  do  more  than  he  otherwise 
could  have  done — and  that  to  assist  him  was  to  assist  his  sureties : 
and  it  was  only  for  the  purposes  of  affording  that  assistance  that 
the  company  did  more  than  they  were  obliged  to  do. 

The  argument,  however,  that  the  advances  beyond  the  stipula- 
-  tions  of  the  contract  were  calculated  to  be  beneficial  to  the  sure- 
ties can  be  of  no  avail.  In  almost  every  case  where  the  surety  has 
been  released,  either  in  consequence  of  time  being  given  to  the  prin- 
cipal debtor,  or  of  a  compromise  being  made  with  him,  it  has  been 
contended  that  what  was  done  was  beneficial  to  the  surety — and 
the  answer  has  always  been  that  the  surety  himself  was  the  proper 
judge  of  that — and  that  no  arrangements,  different  from  that  con- 
tained in  his  contract,  is  to  be  forced  upon  him ;  and  bearing  in 
mind  that  the  surety,  if  he  pays  the  debt,  ought  to  have  the  benefit 
of  all  the  securities  possessed  by  the  creditor,  the  question  always 
is,  whether  what  has  been  done  lessens  that  security. 

In  this  case,  the  company  were  to  pay  for  three-fourths  of  the 
work  done  every  two  months ;  the  remaining  one-fourth  was  to 
remain  unpaid  for  till  the  whole  was  completed;  and  the  effect  of 
this  stipulation  was,  at  the  same  time,  to  urge  Streather  to  per- 
form the  work,  and  to  leave  in  the  hands  of  the  company  a  furn' 
wherewith  to  complete  the  work,  if  he  did  not,  and  thus  it  materially 
tended  to  protect  the  sureties. 


*Part  of  the  statement  of  the  case  is  omitted. 


AJ^J-X^*    , 


ALTERATION  429 

What  the  company  did  was  perhaps  calculated  to  make  it  easier 
for  Streather  to  complete  the  work,  if  he  acted  with  prudence  and  ' 
good  faith ;  but  it  also  took  away  that  particular  sort  of  pressure, 
which,  by  the  contract,  was  intended  to  be  applied  to  him.    And 
the   company,   instead   of   keeping   themselves   in   the    situation    of 
debtors,  having  in  their  hands  one-fourth  of  the  value  of  the  work 
done,  became  creditors  to  a  large  amount,   without  any  security ;  \ 
and  under  the  circumstances,  I  think,  that  their  situation  with  re-  '<- 
spect  to   Streather   was   so   far  altered   that  the   sureties   must  be  r~ 
considered  to  be  discharged  from  their  suretyship. 

I  think,  therefore,  that  the  plaintiffs  are  entitled  to  have  the 
injunction  made  perpetual ;  and  that  they  are  also  entitled  to  the 
costs  of  this  suit. 

The  plaintiffs  appear  not  to  have  had  a  complete  legal  defense, 
though  they  had  a  case  which  reduced  the  damages  to  a  nominal 
amount.  They  would  not,  however,  anticipate  the  result  of  the 
action.  They  had  an  equitable  defense ;  and,  under  the  circum- 
stances of  this  case,  if  an  application  had  been  made  for  the  pur- 
pose, I  do  not  think  that  the  plaintiff  in  equity  would  have  been 
ordered  to  give  judgment ;  and,  after  the  verdict  with  nominal 
damages,  the  application  to  the  court  of  king's  bench  made  by  the 
plaintiffs  at  law,  made  it  important  for  the  defendants  there  to 
proceed  with  their  bill  in  equity. 

See  also  Warre  v.  Calvert,  7  Ad.  &  El.  143. 


FIRST  NATIONAL  BANK  v.  FIDELITY  AND  DEPOSIT 

COMPANY 

145  Ala.  335,  40  So.  415,  5  L.  R.  A.  (N.  S.)  418,  117  Am.  St.  45  (1906). 

This  was  an  action_by  appellant  against  appellee  upon  a  contract 
of  suretyship  entered  into  between  appellant  and  appellee  as  the 
surety  of  John  \Y.  1  Iood  &  Co.,  who  had  a  contract  to  erect  a  build- 
ing for  appellant.  The  bond  or  contract  of  suretyship  was  in  words 
and  figures  as  follows :  "The  State  of  Alabama,  Montgomery 
County.  Know  all  men  by  these  presents :  That  we,  John  W.  Hood 
&  Company,  as  principal,  and  the  Fidelity  and  Deposit  Company 
of  Maryland,  as  surety,  are  held  and  firmly  bound  unto  First  Na- 
tional Bank  of  Montgomery  in  the  sum  of  fifteen  thousand  dollars, 
for  the  payment  of  which  we  bind  ourselves,  heirs  and  executors, 
administrators  and  assigns.  Sealed  with  our  seals  and  dated  this 
7th  day  of  March,  A.  D.  1901.  The  condition  of  this  obligation  is 
such  that,  whereas,  the  above-bounded  John  W.  Hood  &  Co.  did 
on  the  7th  day  of  March,  1901,  enter  into  a  contract,  as  original 
or  general  contractor,  with  said  First  National  Bank  of  Montgomery 


B 


±U> 


430  SURETYSHIP   DEFENSES 

to  build  and  complete  a  six-story  and  attic  fireproof  building  in 
the  city  of  Montgomery,  according  to  plans  and  specifications  fur- 
nished and  prepared  therefor  by  Lockwood  &  Smith,  architects, 
at  and  for  the  price  of  forty-four  thousand  dollars ;  and  whereas, 
under  article  1  of  chapter  71  of  the  Code  of  Alabama  of  1896,  of 
force  from  February  17,  1898,  certain  liens  are  provided  for  me- 
chanics and  materialmen,  and  certain  duties  are  required  of  owners 
and  proprietors,  in  this :  that  if  the  owner  or  proprietor  or  his 
agent  be  notified  in  writing  that  certain  specified  material  will  be 
furnished  to  the  contractors  for  use  in  the  building  or  improvements 
on  the  land  of  the  owner  or  proprietor  at  certain  specified  prices, 
he  shall  be  liable  therefor,  unless  he  objects  thereto,  and  other 
provisions  as  to  liens  of  mechanics  and  materialmen  as  to  any 
unpaid  balance  that  may  be  due  by  owner  or  proprietor  to  the 
original  contractor,  and  for  demanding  of  the  original  contractor 
the  complete  list  of  all  materialmen,  laborers,  and  employes  who 
have  furnished  any  material,  or  have  done  any  labor  or  perform- 
ing any  service,  or  who  may  be  under  any  contract  or  engagement 
to  furnish  any  material  or  to  do  or  to  perform  any  service  to  such 
contractor  for  or  on  such  building  or  improvement,  with  the  terms 
and  price  thereon,  and  for  retaining  and  paying  such  claims,  for 
any  unpaid  balance  remaining  in  the  hands  of  the  owner  or  pro- 
prietor, that  any  such  sum  may  be  retained  and  paid  such  mechanic, 
laborer,  or  materialman  by  the  owner  or  proprietor  if  he  wishes, 
and  shall  be  a  credit  on  this  contract  as  if  paid  to  the  contractors ; 
and  whereas,  said  John  W.  Hood  &  Co.,  as  said  original  contract 
calls  for,  have  agreed  to  furnish  all  the  material  and  labor  required 
in  the  erection  and  completion  of  said  building  herein  referred  to 
and  described,  at  and  for  the  price  hereinbefore  recited  and  ac- 
cording to  the  plans  and  specifications  hereinabove  referred  to,  and 
to  erect  and  complete  said  building  according  to  said  plans  and  spec- 
ifications :  Now,  therefore,  we,  the  undersigned,  agree  to  secure  and 
hold  harmless  the  First  National  Bank  of  Montgomery  against  all 
contracts,  claims,  and  demands  of  all  materialmen,  laborers,  or  em- 
ployes who  may  furnish  any  material  or  thing  or  may  do  or  perform 
any  service,  or  who  may  be  under  a  contract  or  agreement  to  furnish 
any  material  or  thing,  or  to  do  any  labor  or  perform  any  services  to 
said  Hood  &  Co.,  as  aforesaid  contractors,  for  or  on  such  building  or 
improvement,  and  to  exempt  said  First  National  Bank  of  Montgom- 
ery, owner  and  proprietor,  from  making  any  demands  of  the  con- 
tractor for  a  complete  list  of  all  materialmen,  laborers,  and  employes, 
from  retaining  in  his  hands  any  balance  due,  and  to  pay  any  claim  of 
mechanics,  laborers,  and  materialmen  of  which  he  may  have  notice, 
or  from  any  demand  or  liability  whatsoever  to  any  other  person  than 
Hood  &  Co.,  the  original  contractors  herein.  We,  the  undersigned, 
promise  and  agree  that  the  said  Hood  &  Co.  erect  and  complete  said 
building  according  to  said  plans  and  specifications  above  mentioned, 


ALTERATION  431 

and,  further,  this  bond  shall  cover  and  include  any  sum  owing  by 
said  contractors  as  liquidated  damages  for  a  failure  to  complete  con- 
tract in  the  specified  time.  But  if  the  said  Hood  &  Co.  shall  secure 
and  hold  harmless  the  said  First  National  Bank  of  Montgomery 
as  aforesaid,  from  all  loss,  liability,  and  damages  as  hereinbefore 
particularly  mentioned  and  set  forth,  this  agreement  to  be  void ; 
otherwise,  to  remain." 

The  building  contract  and  specifications  are  also  set  out  in  full. 
The  part  of  said  contract  relating  to  the  payments  by  the  bank  to 
the  contractors  is  in  following  words:  "Payments  are  to  be  made 
upon  certificates  of  the  architect  and  upon  estimates  made  for  ma- 
terial when  delivered  at  and  for  said  building,  from  which  shall  be 
reserved  25  per  cent,  of  the  cost  of  such  material,  and  upon  like 
certificates  of  the  architect  and  their  estimates  made,  upon  the  1st 
of  each  month,  payments  are  to  be  made  for  work  erected  into  said 
building,  less  what  has  been  previously  paid  for  the  same  as  ma- 
terials and  from  which  shall  be  reserved  out  10  per  cent,  there- 
of. And  the  said  10  per  cent,  so  reserved  out  of  sum  so  paid  for 
material  and  for  work  erected  into  said  building  is  to  be  paid  after 
the  work  shall  have  been  completely  finished,  delivered,  and  ac- 
cepted by  the  party  of  the  first  part,  provided  that  a  certificate  shall 
be  obtained  by  the  party  of  the  second  part  from  the  clerk  of  the 
office  where  liens  are  recorded,  and  signed  by  said  clerk,  testifying 
that  at  the  time  when  the  payment  is  due  the  building  is  free  from 
all  liens  and  claims  chargeable  to  the  party  of  the  second  part." 

In  reply  to  the  complaint,  the  defendant  set  up  that  it  was  surety, 
and  that  in  violation  of  its  agreement  the  terms  of  payment  set  mil 
in  the  contract  of  building  upon  the  terms  of  which  defendant 
agTreed~~to  become  "surety  and  did  become  surety  for  the  builders 
were  violated  by  the  bank,  in  that  it  made  the  payment  in  utter 
(rfsTegarTt~of ~said  contract;  wherefore  the  surety  was  released.  The 
evidence  tended  to  support  the  plea  strongly. 

Simpson,  J. :  This  was  an  action  by  appellant  against  appellee, 
based  upon  a  bond  which  appellee  executed  March  7,  1901,  as 
surety  for  John  W.  Hood  &  Co.  to  secure  the  faithful  perform- 
ance of  a  contract  by  which  said  Hood  &  Co!  had  agreed  to  fur- 
nish materials  and  erect  a  certain  building  in   Montgomery,  Ala.; 

The  first  point  raised  by  the  pleadings,  and  strenuously  and  ably 
argued  in  the  briefs  of  both  the  appellant  and  appellee,  is  whether 
or  not,  in  a  case  like  this,  where  the  building  contract  specifies  that 
payment  shall  be  made  as  the  work  progresses  upon  certificate  of 
the  architect,  and  estimates  for  material  when  delivered,  reserving 
10  per  cent,  to  be  paid  only  when  the  work  is  completed,  and  the 
owner  undertakes  to  pay  in  a  different  way,  as  by  advancing  money  . 
to  the  contractor  to  be  repaid  as  the  estimates  and  certificates  are 
made,  and  paying  for  lumber  before  it  is  delivered,  without  regard 
to  the  10  per  cent,  reduction,  the  surety  is  released.  \The  appellant 


432 


SURETYSHIP    DFFEXSES 


relies  upon  the  case  of  Fidelity  and  Deposit  Company  of  Maryland 
v.  Robertson,  136  Ala.  379,  34  So.  933,  and  especially  the  remark 
of  the  court,  on  page  409  of  136  Ala.,  page  943  of  34  So.,  to  the 
effect  that  the  provision  of  the  contract,  authorizing  the  temporary 
reservation  from  payments  of  15  per  cent,  of  estimated  earnings, 
was  solely  for  the  benefit  of  the  original  contractor,  and  one  which, 
in  the  absence   of  any  prohibition   in  the  bond,  the   original  con- 
,.  tractor  might  waive  without  the  consent  of  the  surety."    It  is  a 
jnaxim   of   the   law   that :  all   parties,   whether  principal   or    surety, 
who  reduce  their  contracts  to  writing,  have  a  right  to  insist  upon 
I  the  terms  of  the  contract  as  written,  and  it  does  not  lie   in  the 
power  of  the  courts  to  say  that,  although  a  party  has  contracted  to 
do  one  thing,  yet  he  has  done  something  else,  which  is  more  bene- 
|  ficial  to  the  other  party,  and  is  therefore  entitled  to  the  enforcement 
of  the  contract.  |_\Vhen  a  party ^enters  into  a  contract  to  do  certain 
work  and  on  certain  terms,  and  procures  a  surety  to  guarantee- 4he 
faithful  performance  of  the  work,  the  surety  necessarily  contracts 
with  reference  to  the  contract  as  made.    The  terms  of  the  contract 
l  become  a  part  of  the  terms  of  the  bond.    Otherwise  the   surety 
could  never  know  what  obligation  he  was  assuming.    The  contracts 
were  made  at  the  same  time.   The  surety's  bond  recites  that,  where- 
as the  building  contract  has  been  made,  etc.    Then,  in  the  absence 
of  any  explicit  declaration  to  that  effect,  it  is  difficult  to  see  how 
a  court  can  undertake  to  say  that  certain  provisions  are  made  for 
the  benefit  of  the  principal  alone,  and  can  be  waived  or  changed 
by  him,  without  the  consent  of  the  surety.    This  is  a  matter,  how- 
ever, that  has  been  so  thoroughly  discussed  by  the  courts  in  England 
and  in  this  country,  and  the  trend  of  the  best  authorities  is  so  evi- 
dent, that  it  seems  useless  to  go  over  the  arguments  of  the  courts. 
The  leading  case  in  England  is  that  of  Calvert  v.  London  Dock 
Co.,  2  Keen  638.    And  the  Supreme  Court  of  the  United  States, 
in  an  able  opinion  by  Justice  White,  in  which  he  reviews  the  de- 
cisions of  that  court  and  others,  plants  itself  squarely  on  the  Eng- 
lish doctrine,  declaring  that  "the  rulings  of  this  court  have  been 
equally  emphatic  in  upholding  the  right  of  a  surety  to  stand  upon 
the  agreement,  with  reference  to  which  he  entered  into  this  con- 
tract of  suretyship,  and  to  exact  compliance  with  its  stipulations." 
Prairie  State  Bank  v.  United  States,  164  U.  S.  227,  237,  17  Sup. 
Ct.  142,  41  L.  ed.  312.    Equally  emphatic  are  the  cases  of  Simon- 
son  v.  Thori  (Minn.),  31  N.  W.  861;  United  States  v.  Am.  B.  & 
W.Co.,  89  Fed.  925,  930,  32  C.   C.  A.  420;  Backus  v.   Archer 
(Mich.),  67  N.  W.  913,  and  cases  cited;  Stearns  on  Suretyship,  p. 
79,  and  note ;  27  Am.  &  Eng.  Ency.  Law,  495.    See  also  Manatee 
County  State  Bank  v.  Weatherly,  144  Ala.  655.  39  So.  988.    It  is 
unnecessary  to  extend  this  opinion  by  citing  all  the  cases  that  could 
be  produced,  or  by  going  over  the  arguments  in  those  here  cited. 
The  declaration  of  the  principle  is  clear  and  the  reasoning  satis- 


ALTERATION  433 


factory.  We  are  compelled  to  hold  that  the  court  below  committed 
no  error  in  overruling  the  demurrers  to  the  several  pleas  setting 
up  the  defense  mentioned.  The  case  of  Fidelity  and  Deposit  Com- 
pany of  Maryland  v.  Robertson,  supra,  in  so  far  as  it  conflicts 
with  this  opinion,  is  overruled.  The  case  of  Saint  v.  Wheeler  & 
Wilson  Mfg.  Co.,  95  Ala.  362,  10  So.  539,  36  Am.  St.  210,  is  not 
in  conflict  with  this  opinion,  as  in  that  case  it  is  distinctly  stated 
that  the  claim  sued  on  was  not  in  any  way  connected  with  the 
additional  duties  which  had  been  placed  on  the  agent,  and  which 
were  distinct  from  the  duties  guaranteed ;  that,  although  the  agent's 
salary  had  been  reduced,  yet  the  settlement  in  question  was  based 
on  the  original  contract  at  the  original  salary ;  also  that  allowing 
the  agent  to  retain  his  wages  out  of  weekly  collections  was  not 
an  alteration  of  the  contract,  as  it  did  not  provide  the  manner  in 
which  he  was  to  be  paid.  Nor  is  there  any  conflict  with  the  case 
of  White's  Admr.  v.  Life  Association  of  America,  63  Ala.  319,.  35 
Am.  45 ;  for  that  case  announces  the  doctrine  in  all  its  strictness 
in  regard  to  the  discharge  of  the  surety  by  an  alteration  of  the  terms 
of  the  contract,  bjrt__mer&ly_  states  that  mere  indulgence  does  not 
constitutesuch  a  change.*-  In  the  case  of  .Perrine  v.  Fireman's  Inc. 
Co.,  22  Ala.  575,  the  defendant  was  surety  on  a  note  given  by  a 
stockholder  to  the  bank,  and  the  only  point  decided  by  the  court 
was  that  the  fact  that  the  corporation  had  the  power,  under  its 
charter,  to  prohibit  the  transfer  of  the  stock  of  the  stockholders, 
who  were  indebted  to  it,  did  not  make  it  obligatory  on  it  to  do 
so  in  order  to  protect  the  surety.  The  case  of  Stephens  v.  Elver 
(Wis.),  77  N.  W.  737  (referred  to  in  the  brief  of  appellant), 
really  indorses  the  general  doctrine  hereinbefore  stated  and  places 
its  decision  distinctly  upon  the  ground  that  "the  alleged  advances 
were  so  inconsiderable  and  trifling  in  amount  as  not  to  constitute 
a  material  variation  of  the  contract,  and  upon  the  further  fact  that 
the  plaintiff  is  not  in  a  position  to  insist  upon  release,  because  it 
was  at  his  suggestion  that  Pickering  made  the  request  for  an  ad- 
vance." Page  740.  Without  passing  upon  the  question  as  to  whether 
that  court  was  right  in  undertaking  to  say  that  the  alteration  was 
not  material,  we  only  cited  it  to  show  that  it  does  not  militate 
against  the  position  taken  in  his  opinion.  We  do  not  say  that  there 
may  not  be  some  slight  deviation,  so  clearly  immaterial  as  not  to 
affect  the  liabilities  of  the  parties,  but  that  is  not  this  case.  In  the 
case  of  Smith  v.  Molleson  (N.  Y.),  42  N.  E.  670,  which  is  greatly 
relied  upon  by  appellant,  the  decision  was  really  based  on  the  con- 
struction of  the  contract;  the  court  holding  that,  in  making  pay- 
ments, the  value  of  the  stone,  which  had  been  quarried,  but  not 
placed  in  the  building,  should  be  taken  into  consideration,  and  un- 
der that  construction  there  had  been  no  overpayment.  The  court 
affirms  the  doctrine  that  the  surety  "has  the  right  to  insist  upon 
28— De  Witt. 


434 


SURETYSHIP   DEFENSES 


the  strict  performance  of  any  condition  for  which  he  has  stipulated, 
whether  others  would  consider  it  material  or  not."  Page  670,  sec- 
ond column.  Allusion  is  also  made  to  the  special  provisions  in 
that  contract  to  the  effect  that  the  owner  was  "at  liberty  to  make 
any  alterations,  deviations,  additions,  or  omissions  from  the  said 
contract,"  but  the  court  says  "it  is  not  important  to  consider  the 
real  scope  of  this  clause." 

Without  subscribing  to  any  intimations  of  the  court  on  that 
point,  it  may  be  remarked  that  the  corresponding  provision  in  the 
contract  now  before  this  court  differs  from  that  in  the  important 
particular  that,  after  referring  to  the  alteration,  etc.,  it  goes  on  to 
state  that  it  shall  not  "make  void  the  contract,  but  the  difference 
shall  be  added  to  or  deducted  from  the  amount  of  the  contract,, 
as  the  case  may  be,  by  a  fair  and  reasonable  valuation,"  showing 
clearly  that  the  allusion  is  not  to  the  manner  of  payment,  but  to 
the  alteration  in  the  work.  While,  as  between  the  original  parties 
to  the  contract,  either  party  may  waive  any  of  its  provisions,  yet 
when  a  third  party  becomes  interested  in  the  contract  by  binding 
himself  to  its  faithful  execution,  the  contract  becomes  a  part  of 
his  obligation,  and  its  provisions  can  not  be  waived  so  as  to  affect 
his  interest  without  his  consent.    We  hold  that  under  the  contract 

I  and  bond  in  this  case,  which  constitute  one  transaction,  if  the  plain- 
tiff did  not  pay  for  the  work  and  the  material  in  the  manner  pro- 
vided by  the  contract,  but  instead  thereof,  by  an  arrangement  made 
''either  at  the  time  the  contract  was  made,  or  afterwards,  with  the 
contractor,  without  the  consent  of  the  surety,  permitted  the  con- 
tractor to  overdraw  his  account,  so  that  considerable  amounts  of 
money  were  paid  to  him  before  any  certificates  were  issued  by  the 
architect,  and  the  material  was  paid  for,  without  any  estimate  and 
before  delivery,  and  without  any  regard  to  the  retention  of  the 
percentage  required,   trusting  to  the  certificates   and   estimates   to 

,  be  credited  on  said  general  account,  thenAhis_j^aj__sjudi_a_djparturc 
from  the  terms  of  the  original  contract  as  to  release  the  obliga- 

i  tion  of  the  surety.    The  cases  referred  to  by  appellant's  counsel, 

1  which  hold  that,  where  a  collateral  security  has  been  released,  or 
lost,  without  the  consent  or  fault  of  the  surety,  said  surety  is  re- 
leased only  pro  tanto,  do  not  apply  to  a  case  like  this,  even  as  to 
the  10  per  cent,  reserve.    Said  provision  in  this  case  is  one  of  the 
'/conditions  of  the  contract,  and  it  can  not  be  said  that  it  is  a  mere 

..  security  for  the  payment  of  such  money;  but  it  is  reserved  as  much 
as  a   stimulus  to  insure  the  completion  of   the   work  by  the   con- 
ilractor,  as  for  a  mere  security  of  the  amount  of  "money. 
The  judgment  of  the  court  is  affirmed. 

Tyson,  Anderson  and  Denson,  JJ.,  concur.  McClellan,  C.  J. 
(sick),  and  Haralson,  J.  (disqualified),  not  sitting.  Dowdell,  J., 
dissents. 


■ 

ALTERATION  435 

See  also  Doherty  v.  Empire  Stale  Surety  Co.,  1  Tenn.  Ct.  of  Civ.  App.  221 ; 
Ryan  v  Morton,  65  Tex.  258;  Simonson  v.  Grant,  36  Minn.  439,  31  N.  W. 
861  •  County  of  Glenn  v.  Jones,  146  Cal.  518,  80  Pac.  695;  Kunz  v.  Boll,  140 
Wis.  69,  121  N.  W.  601. 


TAMES    BLACK    MASONRY   AND    CONTRACTING    COM- 
PANY, RESPONDENT,  v.  NATIONAL  SURETY      ^ 
COMPANY,  APPELLANT 


61  Wash.  471,  112  Pac.  517  (1911). 

Chadwick,  J.:  Respondent  took  a  contract  for  the  erection  of 
the  Leary  Building,  TrTthe  city  of  Seattle.  He  let  a  subcontract  to 
the  Ellis  Granite  Company,  to  cut  and  place  all  the  stone  in  the 
rirsTTwo  stories  of  the  building.  It  was  agreed  that  the  entire 
\vor1r-siiou1d  be  finished  within  one  hundred  and  twenty-five  days  / 
from  the  date  of  the  contract,  which  was  December  12,  1908.  The 
work  was  delayed,  through  no  fault  of  the  Ellis  Company,  for  * 
abl^in5dyra%37J3Trt^  without  any  changes  or 

aUeiatiotrs-nraterial  to  this  inquiry.   The  contract  price  was  $16,500, 
to-fxTpaid  as  follows : 

"On  the  1st  day  of  each  month  the  contractor  shall  render  to 
the  general  contractor  an  itemized  statement  of  the  work  placed 
in  the  building  during  the  preceding  month,  which  statement  shall 
be  verified  by  the  architects,  and  upon  the  certificate  of  the  archi- 
tects there  shall  immediately  be  paid  to  the  contractor  by  the  gen- 
eral contractor  eighty-five  (85)  per  cent,  of  the  amount  of  work 
finished.  On  the  final  completion  of  the  work  and  the  acceptance 
thereof  by  the  architects,  as  evidenced  by  their  certificate,  the  re- 
mainder of  the  contract  price,  together  with  the  percentage  re- 
tained, shall  be  immediately  payable." 

The  contract  provided  that,  "the  contractor  shall  furnish  a  bond 
in  the  amount  of  $5,000,  for  the  proper  performance  of  the  terms 
of  this  agreement."  Appellant  furnished  this  bond,  which  by  its 
terms  provided  that  the  contract  should  be  a  part  of  its  contract 
of  indemnity.  The  bond  contained  the  usual  provisions  with  ref- 
erence to  notice  to  the  surety  of  any  material  alterations  or  changes  ■' 
in  the  contract. 

On  February  3,  1909,  the  Ellis  Company  gave  notice  that  it  was 
ready  to  begin  the  work  of  installing  the  stone,  but  owing  to  some 
delay  on  the  part  of  the  general  contractors,  it  was  not  permitted 
to  begin  work  of  placing  the  stone  at  the  time  provided  in  the  con- 
tract. This  delay  continued  for  sixty  days.  The  Ellis  Company! 
/having  no  other  immediate  source  of  income,  was  unable  to  meel 
!  its  pay  rolls,  and  accordingly  called  upon  respondent  to  make  some 
advances.    Respondent,  in  conjunction  with  and  by  the  direction  r[ 


436 


SURETYSHIP    DEFENSES 


the  Leary  Company,  and  having  satisfied  itself  that  a  considerable 
quantity  of  the  stone — about  $7,000  worth — had  been  cut  and  was 
in  the  yards  of  the  Ellis  Company,  ready   for  delivery,  did  make 
the   following  advances:    February    11,   1909,  $500;   February    17, 
1909,  $2,000;  March  6,  1909,  $1,000.    It  being  apparent  to  respond- 
ent and  the  Leary  Company  that  additional  advances  would  have 
to  be  made,  their  respective  superintendents  went  to  the  local  agent 
of  the  appellant,  and  asked  him  to  approve  in  writing  of  the  pay- 
ments already  made,  and  give  his  indorsement  to  the  payment  of 
such  additional  sums  as  were  necessary  to  meet  the  expense  ac- 
count of  the   Ellis   Company.    This   request  was   referred  by  theT\ 
agent  of  appellant  to  its  attorneys,  and  on  the  next  day  respondent  j 
and  the  Leary  Company  were  informed  that  appellant  conceived  1 
the  contract  to  have  been  broken,  and  that  it  was  no  longer  liable   \  , 
on  its  bond,  and  accordingly  refused  to  approve  the  payments  that  /' 
had  been  made  or  to  give  its  indorsement  to  the  additional  pay^/ 
ments  required. 

On  March  26,  respondent  notified  the  Ellis  Company  to  forth- 
I  with  proceed  with  the  erection  of  the  granite  for  the  Leary  Build- 
ing, "under  and  pursuant  to  your  contract  dated  December  12, 
1908,"  and  on  March  30,  1909,  respondent  notified  the  appellant 
that  the  Ellis  Company  had  "defaulted  in  the  performance  of  its 
contract  and  has  refused  to  proceed  therewith,  and  further  that 
the  wages  of  the  employes  of  said  company  for  the  week  ending 
March  20,  1909,  were  due  and  had  not  been  paid,  and  no  work 
has  been  done  under  said  contract  since  that  date."  This  notice 
was  of  date  May  25,  and  repudiated  by  appellant,  on  the  theory 
that,  by  the  advancements  referred  to  and  other  advancements  made 
thereafter,  it  was  no  longer  liable,  and  refused  to  recognize  any 
further  liability  on  the  bond. 

The  court  found  that,  when  the  Ellis  Company  made  default  l\ 
payment  of  its  workmen  and  failed  to  proceed  with  the  work  od 
installing  the  stone  in  the  building,  it  was  impossible  for  the  re-\ 
spondent  to  procure  the  stone  elsewhere  without  great  delay,  which | 
would  have  been  disastrous  to  respondent  and  subjected  it  to  great! 
loss.    At  or  about  March  26,  and  prior  to  the  notice  given  by  the  I 
respondent  to  the  appellant  that  the  Ellis  Company  had  abandoned  \ 
its  contract,   its  president  and   secretary   went  to   respondent   and  > 
to  the  Leary  Company  and  told  them  that  the  Ellis  Company  would 
not  be  able  to  carry  out  its  contract,  that  it  was  without  funds,  and 
that  the  party  who  had  been  financing  it  had  refused  to  make  any 
further  advances,  and  thereupon  offered  to  respondent  and  to  the 
Leary  Company  the  material  in  its  yards,  and  the  use  of  its  yards 
and  appliances,  in  the  event  that  they  desired  to  perform  the  work 
upon  their  own  account.    Whereupon  the  Ellis  Company  discharged 
its  bookkeeper,  took  out  its  telephone,  and  from  that  time  on  did 
nothing  in  the   way   of   performance   of   its   contract.    The   Leary 


*_  >  ALTERATION  437 

Company  and  respondent  put  their  own  man  in  charge  of  the  yard 
as  timekeeper  and  bookkeeper,  and  employed  the  president  of  the 
Ellis  Company  as  superintendent  at  a  salary  of  $50  a  week,  and 
at  each  week  end  the  Leary  Company  drew  a  check  to  cover  the 
pay  rolls  and  necessary  expenses.  This  check  was  drawn  in  favor 
of  Mr.  Sayre,  the  superintendent,  and  by  him  converted  into  cash 
which  was  paid  over  to  the  laborers.  It  does  not  appear  in  evidence 
that  anything  was  paid  by  the  Leary  Company  or  the  respondent 
over  and  above  |the  actual  cost  of  labor  and  material,  unless  it  be 
some  charges  for  the  timekeeper,  telephone,  and  other  items  which 
might  be  deducted  without  affecting  the  real  question  before  us. 
The  trial  court  found  : 

"That  the  defendant  National  Surety  Company  was  not  preju- 
diced, injured  or  damaged  in  any  way  or  to  any  extent  whatsoever 
either  by  the  first  three  payments  made  February  11,  1909,  Feb- 
ruary 17,  1909,  or  March  6,  1909,  aggregating  $3,500,  and  that 
said  defendant  was  not  prejudiced,  injured  or  damaged  in  any 
way  whatsoever  by  the  subsequent  payments  made  by  the  plaintiff 
to  the  defendant  Ellis  Granite  Company  to  secure  the  completion 
of  the  contract  of  said  Ellis  Granite  Company." 

The  court  concluded : 

"That  the  plaintiff  is  entitled  to  a  judgment  against  the  defend- 
ant National  Surety  Company  for  the  full  sum  of  $5,000,  together 
with  interest  thereon  at  the  rate  of  six  per  cent,  per  annum  from 
the  24th  day  of  November,  1909." 

Appellant  relies  upon  five  propositions  to  sustain  its  appeal : 

"First — The  advancement  of  $3,500  before  any  work  whatever 
was  done. 

"Second — Payment  of  $6,632.46  before  any  material  was  deliv- 
ered upon  the  grounds. 

"Third — Payment  of  $9,571.19  before  any  payment  was  due. 

"Fourth — Advancements  and  payments  at  all  times  over  and  be- 
yond the  85  per  cent. 

"Fifth — Making  final  payment  without  notice  and  without  hold- 
ing back  reserve  fund  as  stipulated." 

The  contentions  of  respondent  are  sufficiently  indicated  by  the 
statement  of  the  facts  and  the  findings  which  wTe  have  quoted  or 
summarized. 

This  court  has  held,  and  it  is  a  doctrine  from  which  we  are  not|_ 
.inclined  to  depart,  that  [a  compensated  surety  will  not  be  relieved"!/ 
/  of_his  obligation  unless  it  be  shown  that  he  has  been  in  fact  preju-| 
f  dicejcL-by  a  breach  of  the  contract;  that  is  to  say,  the  breach  must 
not  have  been  technical  but  substantial,  working  a  pecuniary  dis- 
advantage to  the  surety,  or  depriving  him  of  some  protection  or 
privilege  reserved  in  the  bond.    Beebe  v.  Redward,  35  Wash.  615, 
77  Pac.  1052 ;  Cowles  v.  United  States  Fidelity  and  Guaranty  Co., 
32  Wash.  120,  72  Pac.  1032,  98  Am.  St.  838 ;  Title  Guaranty  and 


438  SURETYSHIP   DEFENSES 

Trust  Co.  v.  Murphy,  52  Wash.  190,  100  Pac.  315 ;  Denny  v.  Spurr, 
38  Wash.  347,  80  Pac.  541  ;  Heffernan  v.  United  States  Fidelity  and 
Casualty  Co.,  37  Wash.  477,  79  Pac.  1095;  Monro  v.  National 
Surety  Co.,  47  Wash.  488,  92  Pac.  280;  Leghorn  v.  Nydell,  39 
Wash.  17,  80  Pac.  833. 

Respondent  relies  principally  upon  Leghorn  v.  Nydell,  and  Monro 
v.  National  Surety  Co.,  supra.  These  were  cases  holding  that  pay- 
ments advanced  to  a  contractor  before  the  time  stipulated  in  the 
contract  would  not  exonerate  the  bond,  in  the  absence  of  a  positive 
showing  of  prejudice.  In  each  of  these  cases,  as  in  others  of  a 
like  nature,  there  was  a  substantial  compliance  with  the  terms  of 
the  contract  by  the  contractor.  The  payment  was  made  in  accord- 
ance with  the  terms  of  the  bond,  and  having  thereafter  become 
due  by  reason  of  a  performance  of  the  contract,  it  was  held  that 
the  objection  was  technical,  and  the  surety  was  held  to  its  obliga- 
tion. As  was  said  in  Cowles  v.  United  States  Fidelity  and  Guaranty 
Co.,  supra,  the  bond  is  subject  to  the  contract,  and  was  made  after 
the  contract.  It  is  the  contract  instead  of  the  bond  which  is  pri- 
marily to  be  construed.  And,  as  there  suggested,  the  inquiry  should 
be  whether  another  or  a  new  contract  has  been  substituted  for  the 
old  one.  We  think  that  in  this  case  there  was  not  only  a  substantial 
departure,  but  a  clear  abandonment  of  the  original  contract,  and 
a  new  contract  whereby  respondent  and  the  Leary  Company  un- 
dertook to  do  the  work  upon  their  own  account  and  for  their  own 
benefit.  The  contract  provided  that  payment  should  only  be  made 
when  the  stone  had  been  placed  in  the  building,  and  then  upon  the 
certificate  of  the  architect ;  but  without  notice  to  the  surety,  pay- 
ments aggregating  $3,500  were  made  upon  a  $16,500  contract,  be- 
fore they  became  due  and  without  any  certification  on  the  part  of^ 
the  architect.  //. 

There  is  evidence  to  the  effect  that,  but  for  the  delay  pecasionea 
by  the  Leary  Construction  Company,  amounting  to  nearly  sixty 
days,  the  Ellis  Company  could  have  performed  its  contract.  It 
was  because  of  the  act  of  the  Leary  Company  then,  rather  than 
because  of  the  fault  of  the  Ellis  Company,  that  it  was  put  in  default 
and  compelled  to  abandon  its  work.  The  work  being  taken  over  by 
the  respondent  and  the  Leary  Company,  the  situation  made  by 
them  can  not  be  evaded  by  showing  that  accounts  were  kept  with 
the  Ellis  Granite  Company;  that  Sayre  had  been  and  was  in  name 
still  its  president,  and  like  circumstances.  Facts  and  legal  conclu- 
sions can  not  be  overcome  by  mere  bookkeeping.  The  whole  rec- 
ord shows  that  the  Ellis  Company  never  performed,  nor  attempted 
to  perform,  any  part  of  its  contract,  and  that  the  $3,500  or  any 
part  thereof  never  became  due  it,  as  was  so  in  the  cases  relied 
upon  by  respondent.  No  obligee  should  assume  to  pay  a  substan- 
tial part  of  the  contract  price — as  counsel  for  respondent  contend 
and  as  it  seems  probable,  a  sum  equal  to  or  greater  than  the  profit 


ALTERATION  439 

on  the  job — without  notice  to  the  surety.  Advances  or  overpay- 
ments are  allowed  and  held  to  be  without  prejiTdTce  where,  under 
the  facts  of  the  particular  case,  they  afterwards  become  due  to 
the  party  to  whom  they  have  been  paid.  But  here,  not  only  was 
the  time  and  manner  of  the  payment  changed,  but  more  than  one- 
half  of  the  contract  price  was  paid  before  it  was  due  under  the 
contract.  It  was  never  paid  under  the  contract  or  to  the  contract- 
ing party.  It  was  paid  for  the  actual  cost  of  material  and  labor, 
to  those  who  had  furnished  these  items  for  the  benefit  of  the  re- 
spondent. The  general  rule  is,  [if  the  building  owner  advances  to  ' 
Mthe  builder  more  than  he  is  entitled  to  under  the  contract,  the  surety 
Twill  be  released.  The  rule  rests  upon  two  reasons.  The  one  is  that 
such  advance  deprives  the__siiretv  of  the  security  which  the  owner 
or  principal  contractor  has  agreed  to  hold  for  his  benefit,  and  the 
loss  of  the  inducement  which  otherwise  would  have  operateH  on 
the  contractor's  mind  to  induce  him  to  finish  the  work  in  accord- 
ance with  the  terms  of  his  obligation.  Hudson,  Building  and  En- 
gineering Contracts,  694;  Pringrey,  Suretyship  and  Guaranty,  pp. 
103,  138;  27  Am.  &  Eng.  Ency.  Law  (2d  ed.),  p.  496;  Peters  v. 
Mackay,  20  Wash.  172,  54  Pac.  1122;  Calvert  v.  London  Dock 
Co.,  2  Keen  638;  Wehrung  v.  Denham,  42  Ore.  386,  71  Pac.  133; 
Gleen  County  v.  Jones,  146  Cal.  518,  80  Pac.  695;  Leiendecker  v. 
.Etna  Indemnity  Co.,  52  Wash.  609,  101  Pac.  219. 

The  case  of  Gleen  County  v.  Jones,  supra,  is  directly  in  point. 
Upon  a  $5,580  contract,  $1,860  was  paid  prematurely,  without  the 
consent  of  the  sureties,  although  $1,900  worth  of  the  material  had 
been  put  on  the  ground.  The  motive  was,  as  in  this  case,  to  help 
the  contractor  along  with  his  work,  and,  as  here,  the  board  satis- 
fied itself  that  enough  material  was  on  the  ground  to  cover  the 
payment.   The  court  said  : 

"In  our  opinion  the  obligation  of  the  principal  was  altered  in  a 
material  respect  without  the  consent  of  the  sureties.  The  contractor 
was  under  the  obligation  of  placing  all  the  materials  on  the  build- 
ing-site before  he  was  entitled  to  any  money  under  the  terms  of 
his  contract.  By  the  payment  to  him  before  he  had  done  so,  he 
secured  the  money  before  performing  his  obligation.  The  pressure)  I 
which  would  have  been  exerted  upon  him  to  continue  in  the  per- 
formance of  his  contract  and  place  all  the  materials  on  the  site, 
was  removed  when  he  received  the  money.  He  received  it  before 
he  was  entitled  to  it,  without  the  consent  of  the  sureties.  The  sure- 
ties had  bound  themselves  upon  the  assumption  that  the  plaintiff 
would  keep  its  contract  in  good  faith.  We  can  see  no  difference 
in  principle  if  the  whole  of  the  contract  price  had  been  paid  before 
any  of  the  materials  were  placed  on  the  ground.  In  such  case  could 
any  one  doubt  that  the  sureties  would  have  been  exonerated  ?  The 
risk  of  guaranteeing  the  construction  of  a  building  to  be  paid  for 
when  completed  and  accepted,  is  quite  different  from  the  risk  of 


440 


SURETYSHIP   DEFENSES 


guaranteeing  its  construction,  if  the  whole  contract  price  should 
be  paid  in  advance.  In  the  one  case  the  contractor  can  only  get 
the  money  by  performing  his  contract,  while  in  the  other  he  would 
only  pay  out  the  money  already  received,  in  performing  it.  In  this 
case  the  sureties  agreed  and  guaranteed  that  Jones  would  place 
all  the  materials  on  the  building-site,  on  condition  that  he  was  to 
receive  no  money  until  he  had  done  so;  they  did  not  agree  that  if 
paid  in  advance  he  would  place  such  materials  on  the  site.  By  the 
payment,  the  hope  of  reward  for  further  performance  was  lost,  the 
temptation  to  act  dishonestly  was  increased." 

Counsel  for  respondent  seeks  to  distinguish  this  case,  because 
the  contractor  pocketed  the  money  and  then  abandoned  the  con- 
tract. But  the  legal  principle  involved  rests,  not  upon  the  fact  that 
the  contractor  took  the  money  and  appropriated  it  to  his  own  use, 
but  upon  a  breach  of  the  contract  by  the  obligee.  Where  the  money 
went  is  immaterial  to  the  surety.  If  the  owner  could  pay  a  part 
when  nothing  was  due,  and  recover  when  nothing  ever  became  due 
under  the  contract  to  the  principal  of  the  bond,  he  could  then  pay 
all,  and  upon  abandonment  hold  the  surety  upon  the  plea  of  good 
motive,  and  that  the  payment  was  made  for  the  benefit  of  the 
obligor.  In  all  the  cases  decided  by  this  court,  and  by  all  other 
courts  holding  that  payment  by  the  owner  would  not  discharge  the 
principal,  the  facts  have  been  such  that  no  prejudice  resulted  by 
reason  of  such  payments  to  the  surety.  But  in  this  case  the  surety 
was  prejudiced,*  in  the  two  essentials  noticed  and  indorsed  as  suf- 
ficient by  all  the  books ;  that  is,  that  they  were  deprived  .of  that 
security  which  their  contract  gave  them,  and  furthermore,  the  con- 
tractor' was  relieved  of  the  inducement  to  perform  the  labor  and 
furnish  the  material  stipulated  in  his  contract. 

The  case  most  relied  upon  by  respondent  is  Smith  v.  Molleson, 
148  N.  Y.  241,  42  X.  E.  669.  There  the  contract  was  "to  furnish, 
cut,  set  and  clean"  all  the  granite  work  for  a  building;  and  pro- 
vided for  payments  in  installments  not  to  exceed  a  certain  per 
cent,  "of  the  estimated  value  of  the  work  performed  on  the  build- 
ing." It  was  properly  decided  that  the  contract  should  not  turn 
on  the  words  "on  the  building,"  so  as  to  render  payments  made  on 
the  estimates  of  the  work  done  elsewhere  a  departure  available 
as  a  defense  to  the  surety,  it  being  evident  from  the  situation  of 
the  parties,  the  nature  of  the  work,  and  other  provisions  of  the 
contract,  that  the  intention  was  to  make  the  payments  as  the  work- 
progressed.  In  so  holding,  however,  the  court  expressly  affirmed 
the  rule  as  we  have  announced  it  and  as  that  court  had  previously 
declared  it  to  be.  The  object  of  the  courts  should  be  to  ascertain 
and  enforce  the  contract  as  made,  and  not  to  hold  the  surety  to 
a  condition  not  within  the  fair  contemplation  of  the  parties.  Here 
the  contract  was  to  pay  for  the  work  placed  "in  the  building" 
during  the  preceding  month.   We  have  held  that  compensated  sure- 


ALTERATION  441 

ties  would  not  be  heard  to  invoke  the  rule  of  strictissima  juris, 
but  our  holdings  have  gone  no  further  than  to  hold  that  such  sure- 
ties could  not  claim  the  same  rule  of  strict  construction  available 
to  non-compensated  or  voluntary  sureties  or  guarantors.  When 
the  contract  is  plain  and  unambiguous,  or  when  its  doubtful  terms 
have  been  reconciled,  whether  by  the  one  rule  or  the  other,  this 
court  has,  like  all  others,  held  the  parties  to  their  contract ;  for, 
as  is  said  in  the  books,  "a  surety  is  bound  by  the  contract  he  made.  '. 
and  not  by  some  contract  which  he"  did  not  make,  even  though  the 
latter  may  be  more  favorable  to  him  than  the  former."  Sureties 
and  guarantors  are  not  to  be  made  liable  beyond  the  express  terms 
of  their  contract.  The  only  question  open  in  such  cases  is  to  de- 
termine what  the  contract  is  and  enforce  it. 

"It  is  unquestionably  the  well-settled  rule  of  law  that  a  surety 
is  entitled  to  a  somewhat,  rigid  construction  of  his  contract ;  but 
before  this  rule  is  applied,  his  contract  is  subject  to  the  same  con- 
struction as  any  other  contract,  in  order  to  ascertain  and  give  ef- 
fect to  the  intent  of  the  parties,  and  it  is  not  until  this  is  ascertained 
that  its  language  is  to  be  regarded  as  strictissimi  juris."  Pingrey, 
Suretyship  and  Guarantv,  p.  67 ;  citing  Belloni  v.  Freeborn,  63  X. 
Y.  383;  People  v.  Backus,  117  N.  Y.  196,  22  N.  E.  759;  Locke 
v.  McVean,  33  Mich.  473 ;  Shreffler  v.  Nadelhoffer,  133  111.  536, 
25  N.  E.  630,  23  Am.  St.  626. 

The  rule  is  stated  in  the  last  case  as  follows : 

"The  rule  of  strict  construction,  as  applied  to  the  contracts  of 
sureties  and  guarantors,  in  no  way  interferes  with  the  use  of  the 
ordinary  tests  by  which  the  actual  meaning  and  intention  of  con- 
tracting parties  are  ordinarily  determined,  but  merely  limits  their 
liability  strictly  to  the  terms  of  their  contract  when  those  terms  are 
ascertained,  and  forbids  any  extension  of  such  liability  by  implica- 
tion beyond  the  strict  letter  of  those  terms." 

Here  the  contract  is  plain.  It  was  agreed  that  no_pavinent  should 
be  made  untTTTKe  first  day  of  the  month  following  the  installation; 
of  the  stone.  The  conduct  of  respondent  and  the  Leary  Com-" 
pany  shows  that  they  so  understood  it.  The  payment  of  $3,500 
was  made  in  defiance  of  the  terms  of  the  contract,  and,  under  the 
authorities  cited,  operates  to  the  legal  prejudice  of  appellant.  That 
this  court  has  never  held  that  the  obligee  of  a  bond  was  not  bound 
to  observe  the  terms  of  his  .contract,  or  that  the  surety  was  bound 
in  any  event,  it  is  only  necessary  to  refer  to  the  case  of  Leiendecker 
v.  iEtna  Indemnity  Co.,  supra,  which  is  in  line  with  an  unbroken 
current  of  authority  flowing  from  the  leading  case  of  Calvert  v. 
London  Dock  Co.,  supra,  and  all  holding  that,  when  ascertained, 
the  stipulations  of  the  contract  were  binding  on  both  parties.  In 
the  Leiendecker  case,  after  setting  out  the  specification  that  the 
last  payment  should  be  reserved  for  the  protection  of  the  surety, 
Judge  Dunbar  said : 


442  SURETYSHIP    DEFENSES 

"There  was  a  contractual  relation  existing  by  reason  of  this 
bond  between  the  indemnity  company  and  the  appellant.  This 
provision  was  accepted  by  the  appellant  when  he  accepted  the  bond 
as  a  specification  of  his  duties  in  the  premises ;  and  it  seems  to  us 
that  it  was  a  fraud  upon  the  indemnity  company  to  neglect  to  no- 
tify it  that  a  payment  had  been  made  which  was  not  disclosed  in 
the  contract  upon  which  the  bond  was  given,  and  the  making  of 
which  rendered  unavailing  the  provision  in  the  bond  just  quoted. 
Having  accepted  the  bond  with  a  provision  of  this  kind,  we  think 
the  appellant  is  bound  by  such  provision." 

Judgment  reversed,  with  instructions  to  the  lower  court  to  enter 
a  decree  in  favor  of  appellant. 

Rudkin,  C.  J.,  and  Morris,  J.,  concur. 

Dunbar,  J.  (dissenting) — I  dissent.  The  whole  record  convinces 
me  that  the  court  was  justified  in  finding  that  the  surety  company 
was  not  prejudiced  to  any  extent,  or  in  any  way,  by  the  payments 
made,  and  this  under  our  uniform  holdings  is  the  test  of  whether 
the  deviation  is  material.  In  the  Leiendecker  case,  cited  above,  it 
was  apparent  that  the  payments  out  of  order  were  made  to  the 
detriment  of  the  surety  company.  So  that  the  case  is  in  no  wise 
in  point. 

Crow,  J.,  concurs  with  Dunbar,  J. 


UNITED    STATES,   TO   USE   OF  ANNISTON    PIPE   AND 
FOUNDRY  CO.,  v.  NATIONAL  SURETY  CO. 

92  Fed.  549  (1899). 

In  error  to  the  Circuit  Court  of  the  United  States  for  the  East- 
ern District  of  Missouri. 

This  sjj.it.  was  brought  by  the  Anniston  Pipe  and  Foundry  Com- 
pany, the  plaintiff  in  error,  "in  the  jlaiJie  of  the"  United  States. 
J  against  the  .National  Surety  Company,  the  defendant  in  error,  on, 
a  bond  executed  by  the  defendant  on  July  15,  1895,  as  surety  for 
T.  J.  Prosser,  the  bond  having  been  executed  pursuant  to  the  pro- 
visions of  an  Act  of  Congress  approved  August  13,  1894  (28  Stat. 
278,  c.  280),  which  is  as  follows: 

"An  act  for  the  protection  of  persons  furnishing  materials  and 
labor  for  the  construction  of  public  works. 

"Be  it  enacted,"  etc.,  "that  hereafter  any  person  or  persons 
entering  into  a  formal  contract  with  the  United  States  for  the 
construction  of  any  public  building,  or  the  prosecution  and  com- 
pletion of  any  public  work  or  for  repairs  upon  any  public  building 
or  public  work,  shall  be  required  before  commencing  such  work 
to  execute  the  usual  penal  bond,  with  good  and  sufficient  sureties, 


.A^*\ 


ALTERATION 


443 


/ 


with  the  additional  obligations  that  such  contractor  or  contractors 
shall  promptly  make  payments  to  all  persons  supplying  him  or 
them  labor  and  materials  in  the  prosecution  of  the  work  provided 
for  in  such  contract ;  and  any  person  or  persons  making  application 
therefor,  and  furnishing  affidavit  to  the  department  under  the  di- 
rection of  which  said  work  is  being,  or  has  been  prosecuted,  that 
labor  or  materials  for  the  prosecution  of  such  work  has  been  sup- 
plied by  him  or  them,  and  payment  for  which  has  not  been  made, 
shall  be  furnished  with  a  certified  copy  of  said  contract  and  bond, 
upon  which  said  person  or  persons  supplying  such  labor  and  mate- 
rials shall  have  a  right  of  action  and  shall  be  authorized  to  bring  ' 
suit  in  the  name  of  the  United  States  for  his  or  their  use  and 
benefit  against  said  contractor  and  sureties  and  to  prosecute  the 
same  to  final  judgment  and  execution :  provided,  that  such  action 
and  its  prosecution  shall  involve  the  United  States  in  no  expense." 
T.  J.  Pressor,  the  principal  in  the  bond,  had  entered  into  a  con- 
tract with  Charles  15.  Thompson,  assistant  quartermaster  oi  the 
United  States  army,  who  acted  for  and  in  behalf  of  the  United 
States  of  America,  for  the  construction  of  a  boiler  and  pump  house, 
pumping  machinery,  and  connections,  water  mains,  steel  trestle,  and 
wafer  tank,  etc.,  for  the  water-supply  system  for  the  new  military 
post  near  Little  Rock,  Ark. ;  and  the  bond  contained  a  condition, 
in  substance,  that  if  said  Prosser,  his  heirs,  executors,  and  admin- 
istrators, should  in  all  respects  duly  and  fully  observe  and  perform 
all  and  singular  the  covenants,  conditions,  and  agreements  in  and 
by  said  contract  agreed  to  be  observed  and  performed  by  said 
Prosser,  according  to  the  true  intent  and  meaning  of  said  contract, 
as  well  during  any  period  of  extension  of  said  contract  as  during  ] 
the  original  term,  and  should  make  full  payments  to  all  persons 
supplying  him  labor  or  materials  in  the  prosecution  of  the  work 
pro/ided  for  in  said  contract,  then  the  obligation  should  become 
void,  but  otherwise  remain  in  full  force  and  virtue.  The  plaintiff 
company  sued  to  recover  of  the  defendant,  as  surety  in  said  bond, 
the  sum  of  $842.98,  with  interest  and  costs,  being  Ene  value  gi 
certain  water  pipe  which  it  had  supplied  to  Prosser,  subsequenl  to 
the  execution  of  the  aforesaid  bond  and  contract,  to  enable  him 
to~l!Xecute  his  agreement  with  the  government,  and  which  pipe  so 
supplied  he  had  actually  used  for  that  purpose,  but  had  not  paid 
for.  For  a  defense  to  the  action  the  defendant  pleaded,  and  the 
trial  court  so  found,  that  subsequent  to  the  execution  of  the  afore- 
said bond,  and  the  contract  which  it  was  given  to  secure,  the  gov- 
ernment had  entered  into  a  further  agreement  with  Prosser,  modi- 
fying the  terms  of  the  original  contract,  or,  more  accurately,  the 
specifications  thereto  attached,  in  such  a  manner  that  Prosser  was 
required- 4o  lay-  only  1,866  lineal  feet  of  six-inch  water  pipe  in 
place  of  3,850  feet,  as  specified  in  the  original  contract,  and  that 
this  change  in  the  terms  of  the  original  contract,  or  rather  in  the 


i 


444 


SURETYSHIP    DEFENSES 


plans  for  its  execution,  was  made  without  the  knowledge  or  con- 
sent of  the  surety  company.  In  view  of  the  change  in  the  plans 
for  the  execution  of  the  contract  which  lessened  the  amount  of 
water  pipe  necessary  to  be  supplied  and  used,  the  trial  court  ruled 
that  the  plaintiff  could  not  recover.  It  accordingly  rendered  a  judg- 
ment in  favor  of  the  defendant,  to  reverse  which  the  record  has 
been  removed  to  this  court  by  a  writ  of  error. 

Before  Caldwell,  Sanborn,  and  Thayer,  Circuit  Judges. 

Thayer,  Circuit  Judge,  after  stating  the  case  as  above,  delivered 
the  opinion  of  the  court. 

It  is  a  familiar  rule  of  law  that  the  contract  of -a  surety  must 
J  be  strictly  construed,  and  that  it  can  not  be  enlarged  by  construc- 
tion, and  that  when  a  bond,  with  sureties,  has  been  given  to  secure 
the  performance  of  a  contract,  and  the  principal  in  the  bond  and 
the  person  for  whose  benefit  it  was  given  make  a  material  change 
in  the  contract  without  the  consent  of  the  surety,  the  latter  is  there- 
by discharged.  For  present  purposes,  it  may  be  conceded  that  the 
finding  of  the  lower  court  in  the  case  at  bar  discloses  such  a  modi- 
fication of  the  original  contract  between  Prosser  and  the  United 
States  as  would  fall  within  the  rule  last  stated,  and  release  the 
defendant  company  from  its  liability,  if  the  United  States  was 
suing  for  its  own  benefit  for  a  breach  of  some  provision  of  the 
contract,  the  due  performance  of  which  the  bond  was  intended  to 
secure.  Such,  however,  is  not  the  case.  The  suit  is  not  brought 
by  the  United  States  to  recover  any  damage  which  it  has  sustained ; 
neither  is  it  brought  to  enforce  any  provision  of  the  contract  which 
was  entered  into  between  the  United  States  and  the  principal  in 
the  bond.  On  the  contrary,  the  action  is  one  to  enforce  /a  stipula- 
tion  found  in  the  bond,  and  only  in  the  bond,  which  was  intended 
_  solely  for  the  protection  of  laborers  and  materialmen  who  might 
furnish  labor  and  materials  while  the  contract  was  being  executed 
by  Prosser.  The  United  States  is  merely  a  nominal  plaintiff,  and 
as  such,  under  the  provisions  of  the  Act  of  Congress,  it  can  not 
be  held  liable  even  for  costs.  The  real  plajntiff  is  the  corporation 
for  whose  use  the  suit  was  brought,  and  it  (sues  to  enforce  an  ohli- 
gation  which  Congress  required  to  be  inserted  in  the  bond  for  its 
protection  and  for  the  protection  of  others  who  might  furnish  la- 
bor or  materials  while  the  work  was  in  progress. 

The  real  question  to  be  considered,  therefore,  is  whether  the  act 


of  congress  under  which  the  bond  in  suit  was  taken  constituted  the 
United  States  the  agent  or  representative  of  the  persons  who  sup- 
plied labor  and  material  after  the  contract  and  bond  were  executed, 
in  such-a  sense  that  its  action  in  consenting  to  a  modification  of  the 
contract  with  Prosser  must  be  imputed  to  the  laborers  and  material- 
men, and  held  to  deprive  them,  as  well  as  the  government,  of  all 
recourse  against  the  surety. 

The  Act  of  Congress  of  August  13,  1894,  does  not  authorize  the 


ALTERATION  445 

United  States  to  bring  suits  of  its  own  motion  against  the  obligors 
in  such  bonds  as  are  therein  provided  for,  to  recover  what  is  due 
to  laborers  and  materialmen.  It  is  not  empowered  to  act  in  their 
behalf  in  that  respect,  but  such  actions  can  only  be  brought  at  the 
instance  of  persons  who  furnish  labor  and  materials,  who  are  au- 
thorized, without  previous  leave  being  obtained  from  any  executive 
department,  to  sue  in  the  name  of  the  United  States,  and  control 
the  litigation  precisely  as  they  might  control  it  if  the  suits  were 
brought  in  their  own  name.  It  is  also  noticeable  that  in  its  title 
the  act  professes  to  be  one  for  the  benefit  "of  persons  furnishing 
materials  and  labor,"  and  that  in  the  body  of  the  act  the  form  of 
the  condition  to  be  inserted  in  the  bond  for  the  benefit  of  the 
United  States  is  not  in  terms  prescribed,  the  only  provision  in  that 
regard  being  that  the  bond  shall  be  "the  usual  penal  bond ;"  mean- 
ing, evidently,  such  an  obligation  for  the  government's  own  protec- 
tion as  it  had  long  been  in  the  habit  of  exacting  from  those  with 
whom  contracts  were  made  for  the  doing  of  public  work.  On  the 
other  hand,  the  condition  for  the  benefit  of  persons  who  might  fur- 
nish materials  or  labor  is  carefully  prescribed.  Obviously,  there- 
fore, congress  intended  to  afford  full  protection  to  all  persons  who 
supplied  materials  or  labor  in  the  construction  of  public  buildings,  ■ 
or  other  public  works,  inasmuch  as  such  persons  could  claim  no  lien 
thereon,  whatever  the  local  law  might  be,  for  the  labor  and  mate- 
rials so  supplied.  There  was  no  occasion  for  legislation  on  the 
subject  to  which  the  act  relates,  except  for  the  protection  of  those 
who  might  furnish  materials  or  labor  to  persons  having  contracts  ? 
with  the  government.  The  bond  which  is  provided  for  by  the  act  _ 
was  intended  to  perform  a  double  function— in  the  first  place,  to  ■ 
secure  to  the  government,  as  before,  the  faithful  performance  of  all  . 
obligations  which  a  contractor  might  assume  toward  it ;  and,  in  the  ' 
second  place,  to  protect  third  persons  from  whom  the  contractor 
obtained  materials  or  labor.  Viewed  in  its  latter  aspect,  the  bond, 
by  virtue  of  the  operation  of  the  statute,  contains  an  agreement 
between  the  obligors  therein  and  such  third  parties  that  they  shall  , 
be  paid  for  whatever  labor  or  materials  they  may  supply  to  enable 
the  principal  in  the  bond  to  execute  his  contract  with  the  United 
States.  The  two  agreements  which  the  bond  contains,  the  one  for 
the  benefit  of  the  government,  and  the  one  for  the  benefit  of  third 
persons,  are  as  distinct  as  if  they  were  contained  in  separate  instru- 
ments, the  government's  name  being  used  as  obligee  in  the  latter  <* 
agreement  merely  as  a  matter  of  convenience. 
_  Inview  of  these  considerations,  we  are  of  opinion  that  the  sure- 
ties in  a  bond,  executed  under  the  act  now  in  question,  can  not 
claim  exemption  from  liability  to  persons  who  have  supplied  labor 
or  material  to  their  principal  to  enable  him  to  execute  his  contract 
ith  the  United  States,  simply  because  the  government  and  the 
contractor,    without    the    surety's    knowledge,    have    made    some 


446 


SURETYSHIP    DEFENSES 


changes  in  the  contract,  subsequent  to  the  execution  of  the  bond 
given  to  secure  its  performance,  which  do  not  alter  the  general 
character  of  the  work  contemplated  by  the  contract  or  the  general 
character  of  the  materials  which  are  necessary  for  its  execution. 
When  the  government  has  executed  the  contract  and  taken  and  ap- 
proved the  bond,  it  ceases  to  be  the  agent  of  third  parties  whom 
the  contractor  employs  in  the  execution  of  the  work  or  from  whom 
he  obtains  materials,  and  the  rights  of  such  persons  under  the  bond 
are  unaffected  by  subsequent  transactions  between  the  government 
and  the  contractor.  If  such  were  not  the  case,  it  would  be  possi- 
ble for  the  contractor  and  some  officer  of  the  United  States,  by 
making  some  change  in  the  contract  or  specifications,  to  deprive 
laborers  and  materialmen  of  all  recourse  against  the  sureties  in  the 
bond  after  they  had  supplied  materials  and  labor  of  great  value  in 
reliance  upon  its  provisions.  It  is  not  probable  that  such  a  result 
was  contemplated  by  the  lawmaker.  On  the  contrary,  the  act  bears 
every  evidence  that  it  was  intended  to  provide  a  security  for  labor- 
ers and  materialmen  on  which  they  could  rely  confidently  for  pro- 
tection, unless  they  saw  fit,  by  their  own  dealings  with  the  con- 
tractor, to  relinquish  the  benefit  of  the  security.  We  are  confirmed 
in  these  views  by  the  following  authorities :  Dewev  v.  State,  91  Ind. 
173  ;  Conn.  v.  State,  125  Ind.  514,  25  N.  E.  443 ;  Doll  v.  Crume,  41 
Nebr.  655,  59  N.  W.  806 ;  Kaufmann  v.  Cooper,  46  Nebr.  644,  65 
N.  W.  796;  Steffes  v.  Lemke,  40  Minn.  27,  41  N.  W.  302.  The 
first  two  of  these  cases  are  very  much  in  point.  Bonds  were  given 
to  the  state  of  Indiana  as  obligee  for  the  doing  of  public  work,  in 
pursuance  of  a  statute  of  that  state,  which  bonds  contained  condi- 
tions requiring,  first,  the  faithful  performance  and  execution  of 
the  work  undertaken  by  the  contractor ;  and,  second,  the  prompt 
payment  by  the  contractor  of  all  debts  incurred  by  him  in  the  prose- 
cution of  the  work  for  labor  and  materials  supplied  by  third  par- 
ties. It  was  held,  in  substance,  that  for  any  breach  of  the  second 
condition  of  the  bond  by  the  contractor  the  right  of  action  was  in 
the  laborer  or  the  materialman,  and  that  such  right  of  action  could 
not  be  defeated  or  prejudiced  by  any  act  done  by  the  obligee  in  the 
bond  after  the  bond  had  been  taken  and  approved.  It  was  accord- 
ingly ruled  that  changes  made  in  the  contract  by  the  parties  thereto, 
to  wit,  the  contractor  and  the  public  authorities,  after  the  bonds 

•  had  been  executed  and  accepted,  would  not  deprive  material- 
men of  their  right  to  recover  against  the  sureties  in  the  bond.    It 

N-esults  from  what  has  been  said  that  the  judgment  of  the  circuit 
court  was  erroneous  upon  the  facts  found  by  that  court,  and  should 
be  reversed.  It  is  so  ordered,  and  that  the  case  be  remanded  for  a 
new  trial. 


o^-C 


EXTENSION    OF    TIME  447 


SECTION  4.  EXTENSION  OF  TIME  OF  PERFORMANCE 
OF  PRINCIPAL  AGREEMENT 

SAMUELL  v.  HOWARTI I 

3  Mer.  272  (1817).  f  • 

The  plaintiff  was  a  guarantor  for  the  payment  of  a  bill  of  goods 
purchased  of  the  defendant.  The  principal,  at  the  maturity  of  the 
credit,  accepted  drafts  payable  in  three  months,  and  at  the  ma- 
turity of  these  drafts  they  were  renewed.  The  plaintiff  filed  a  bill 
in  equity  praying  that  the  guaranty  might  be  delivered  up  and 
canceled  and  that  the  creditor  might  be  restrained  from  proceed- 
ing at  law  against  the  plaintiff.1 

The  Lord  Chancellor.  The  guaranty  given  in  this  case  is  general 
in  its  terms,  and  must  be  construed,  according  to  its  legal  effect,  in 
favor  of  the  surety. 

The  liabilities  of  sureties  are  governed  by  principles  which  have 
been  long  settled  in  equity  and  are  now  adopted  in  courts  of  law. 
I  say,  now,  because  the  Court  of  Common  Pleas  formerly  held  a 
different  doctrine.  But  at  present  it  is  firmly  established  that  the 
same  principles  which  have  been  held  to  discharge  the  surety  in 
eqmfy  will  operate  to  discharge  him  also  at  law.  However,  as  the 
same  relief  is  to  be  obtained  in  both,  a  court  of  equity  will  not  send 
a  party  who  is  suing  here  to  a  court  of  law  for  the  discharge  to 
which  he  is  equally  entitled  in  this  place. 

The  rule  is  this:  That,  if  a  creditor,  without  the  consent  of  the,, 
surety,  gives  time  to  the  principal  debtor,  by  so  doing  he  discharges 
the  surety;  that  is,  if  time  is  given  by  virtue  of  positive  contract 
between  the  creditor  and  the  principal — not  where  the  creditor  is 
merely  inactive.  And,  in  the  case  put,  the  surety  is  held  to  be  dis- 
charged, for  this  reason,  because  the  creditor,  by  so  giving  time  to 
the_principal  has  put  it  out  of  the  power  of  the  surety  to  consider 
whether  he  will  have  recourse  to  his  remedy  against  the  principal, 
or  not ;  and  because  he,  in  fact,  can  not  have  the  same  remedy 
agajnst  the  principal  as  he  would  have  had  under  the  original  con- 
tract. 

Now,  in  the  present  case,  the  creditor  has  been  supplying  goods 
to  the  principal  debtor,  from  time  to  time,  upon  a  certain  credit, 
the  extent  of  which,  not  being  expressly  stipulated  between  the 
parties,  I  must  take  to  be  credit  given  according  to  the  usual  course 
of  trade.  The  surety  says,  I  will  be  answerable  for  the  amount  of 
such  goods  as  you  shall  furnish  during  the  period  from  the  2d  of 
April,  1814,  to  the  2d  of  April,  1815.     It  is  impossible  for  me  to 

1  Statement  of  case  abridged 


448 


SURETYSHIP    DEFENSES 


-i 


<t 


hold  that  this  is  an  engagement  by  which  he  (the  surety)  has  ren- 
dered himself  liable  for  an  indefinite  time  beyond  the  expiration 
of  the  period  limited  for  the  delivery  of  the  goods.  It  can  not  be 
supposed  that  the  plaintiff  meant  he  could  continue  liable,  after  the 
2d  of  April,  1815,  so  long  as  the  defendant  might  choose  to  renew 
the  bills  of  the  principal  debtor.  You  can  not  contend  in  support 
of  such  an  extravagant  proposition.  It  has  been  truly  stated  that 
the  renewal  of  these  bills  might  have  been  for  the  benefit  of  the 
surety;  but  the  law  has  said  that  the  surety  shall  be  the  judge  of 
that,  and  that  he  alone  has  the  right  to  determine  whether  it  is,  or 
is  not,  for  his  benefit.  .The  creditor  has  no  right — it  is  against  the 
faith  of  his  contract — to  give  time  to  the  principal,  even  though 
manifestly  for  the  benefit  of  the  surety,  without  the  consent  of  the 
surety. 

Injunction  continued. 

See  also  Moss  v.  Hall,  5  Exch.  46;  Rees  v.  Berrington,  6  Ves.  540. 

Where  a  wife  as  surety  for  her  husband  signs  his  note  and  secures  it  by  a 
mortgage  of  her  real  estate,  an  agreement  extending  the  time  for  the  payment 
of  the  note  which  discharges  her  personal  liability  will  discharge  the  mortgage 
security  also.   Diehlv.  Davis,  75  Kans.  38,  88  Pac.  532,  12  Ann.  Cas.  548. 

An  extension  of  time  granted  to  one  surety  releases  a  cosurety  to  the  extent 
of  the  contributory  shar£  of  the  one  to  whom  the  extension  was  given.  Ide 
v.  Churchill,  14  Ohio.St'^372 ;  Gosseraud  v.  Lacour,  8  La.  Ann.  75;  Hallock  v. 
Yankey,  102  WIsT4l778  N.  W.  156,  72  Am.  St.  861;  Waggener  v.  Dyer,  11 
Leigh  (Va.)  384. 

Contra:  Draper  v.  Weld,  13  Gray  (Mass.)  580:  Sherman  County  v.  Nich- 
ols. 65  Nebr.  250,  91  N.  W.  198. 


PHILADELPHIA  TO  USE  v.  FIDELITY  &  DEPOSIT  COM-; 
PANY  OF  MARYLAND,  APPELLANT 

231  Pa.  208,  80  Atl.  62,  Ann.  Cas.  1912B,  1085n  (1911). 

Opinion  by  Mr.  Justice  Moschzisker. 

On  December  11,  1907,  the  firm  of  Lynch  Brothers  contracted  to 
erect  a  schoolhouse  for  the  city  of  Philadelphia,  to  be  finished  by 
August  1,  1908.  A  percentage  of  the  contract  price  was  to  be  re- 
tained by  the  city  until  the  acceptance  of  the  building,  and  the  sum 
of  $3,723.58  for  a  period  of  twelve  months  after  completion,  as  a 
guarantee  for  the  sufficiency  of  the  work.  The  Fidelity  and  Deposit 
Company  of  Maryland,  the  defendant,  became  surety  on  a  bond 
given  by  the  contractors  under  the  city  ordinance  of  March  30, 
1896,  to  secure  the  payment  to  subcontractors  and  others  for  labor 
and  materials  supplied  in  the  prosecution  of  the  work.  On  No- 
vember 14,  1907,  the  firm  of  Thompson  Brothers,  the  use  plaintiffs, 
contracted  with  Lynch  Brothers  to  furnish  labor  and  materials  for 
certain  portions  of  the  work,  and  on  May  14,  1908,  they  entered 


: 

EXTENSION    OF   TIME  449 


l-VVW^T  _,__    _   „„„,  AAQ 


into  an  additional  contract.  At  or  before  the  time  when  the  debt 
to  Thompson  Brothers  became  due  and  payable,  they  accepted  a 
note  from  Lynch  Brothers,  dated  December  2,  1908,  for  an  amount 
sufficient  to  cover  the  balance  now  claimed,  and  with  an  express 
agreement  that  an_  extension  of  time  should  be  granted  until  the 
maturity  of  the  note.  This  note  was  renewed  on  four  occasions, 
with  like  agreements  for  extensions  till  November  19,  1909;  all  of 
the  renewals  and  extensions  were  without  the  knowledge  or  con- 
sent  of  the  surety.  There  was  a  sufficient  consideration  to  support 
the  several  extensions,  and  there  is  no  claim  that  the  notes  were 
taken  in  payment  of  the  debt.  On  or  before  November  18,  1909, 
the  moneys  retained  by  the  city  were  paid  to  Lynch  Brothers,  who 
became  insolvent  before  November  19,  1909,  and  on  November  24, 
1909,  were  adjudged  bankrupts.  On  February  11,  1910,  this  suit 
was  instituted  against  the  defendant  company  as  surety  on  the 
bond,  claiming  a  balance  due  and  unpaid  for  work  and  material 
furnished  by  the  use  plaintiffs,  with  interest  "from  October  19, 
1908,  the  date  when  the  work  *  *  *  was  completed."  Affi- 
davits of  defense  were  filed  averring  the  facts  substantially  as  above 
set  forth ;  the  court  entered  judgment  for  want  of  a  sufficient  affi- 
davit of  defense,  and  the  defendant  has  taken  this  appeal. 

The  appellant  contends  that  the  extensions  of  time  granted  by 
the  use  plaintiffs  to  the  contractors,  without  notice  to  or  consent 
from  the  surety,  released  the  latter  from  its  liability  on  the  bond. 

VThis  would  be  true  if  the  bond  were  an  ordinary  contract  of  surety- 
ship with  an  individual  as  surety.     But,  as  we  said  in  the  recent 
case  of  Young  v.  American  Bonding  Company,  228  Pa.  373 :   "The 
trend  of  all  our  modern  decisions,  federal  and  state,  is  to  distin- 
guish between  individual  and  corporate  suretyship  where  the  latter 
is  an  undertaking  for  money  consideration  by  a  company  chartered 
for  the  conduct  of   such  business.      In  the   one   case  the   rule   of 
strictissimi  juris  prevails,  as  it  always  has ;  with  respect  to  the  other, 
because  it  is  essentially  an  insurance  against  risk,  underwritten  for  . 
a  money  consideration  by  a  corporation  adopting  such  business  for 
its  own  profit,  the  courts  generally  hold  that  such  a  company  can 
be  relieved  from  its  obligation  for  suretyship  only  where  a  depar- 
ture from  the  contract  is  shown  to  be  a  material  variance.    *    *    * 
f  While  such  corporations  may  call  themselves  surety  companies,  their 
\  business  is  in  all  essential  particulars  that  of  insurance.    Their  con- 
^  tracts  are  usually  in  the  terms  prescribed  by  themselves,  and  should 
(J?e  construed  most  strictly  in  favor  of  the  obligee." 

Here  the  bond  was  for  the  protection  of  subcontractors  and 
others  in  the  construction  of  a  public  building.  It  differs  from  the 
ordinary  suretyship,  in  that  it  is  not  an  obligation  for  the  perform- 
ance of  any  particular  contract.  It  was  given  for  the  benefit  of 
all  persons  who  might  furnish  labor  or  material  in  the  course  of 
29— De  Witt. 


450  SURETYSHIP    DEFENSES 

the  work,  whether  the  contracts  for  such  labor  and  material  were 
in  existence  at  the  time  the  bond  was  executed  or  not,  and  without 
regard  to  the  terms  of  purchase,  whether  for  cash  or  on  credit. 
In  its  nature  the  obligation  was  more  of  a  contract  of  insurance 
than  of  suretyship;  ^o  long  as  the  extensions  of  credit  did  not  go 
beyond  the  two-year  limit  for  suit  fixed  in  the  bond,  and  in  the  ab- 
sence of  fraud  cr  unfair  dealing  on  the  part  of  the  subcontractors 
to  the  prejudice  of  the  surety,  or  of  material  harm  actually  suffered, 
the  surety  was  not  released.  The  surety  does  not  aver  any  of  these 
elements,  but  relies  upon  a  presumption  of  injury  because  the 
moneys  retained  by  the  city  were  paid  over  before  the  expiration 
of  the  extensions.  These  moneys  were  not  retained  for  the  benefit 
of  the  surety,  but,  in  the  words  of  the  contract,  "as  a  guarantee 
that  *  *  *  (the  contractors)  *  *  *  shall  keep  all  of  said 
work  done  by  them  in  good  order  and  repair  for  said  period  of 
twelve  months ;"  nor  could  the  subcontractors  have  enforced  their 
claim  against  this  fund :   Lesley  v.  Kite,  192  Pa.  268. 

YVe  rind  no  direct  averment  in  the  affidavits  of  defense  that  the 
surety  was  actually  harmed  by  the  extensions  granted  to  the  con- 
tractors, and  the  facts  as  stated  therein  are  not  sufficient  in  them- 
selves to  false  such  a  presumption.  For  all  that  appears,  the  con- 
tractor may  have  paid  every  cent  of  the  cash  received  to  other  ma- 
terialmen or  mechanics  who  did  work  upon  the  building.  In  a  case 
of  this  kind,  there  is  no  presumption  that  the  surety  company  is 
harmed,  )the  prejudice  must  be  made  to  appear,  and  the  suggestion 
of  mere  contingencies  or  possibilities  is  not  enough. 

The  assignments  of  error  are  overruled  and  the  judgment  is  af- 
firmed. 

See  also  Guaranty  Co.  v.  Pressed  Brick  Co.,  191  U.  S.  416,  48  L.  e<L  242 : 
United  States  Fidelity  &c.  Co.  v.  United  States,  178  Fed.  692. 

An  agreement  made  between  the  creditor  and  a  stranger  to  extend  the  time 
of  payment  will  not  discharge  the  surety.   Fraser  v.  Jordan,  8  El.  &  Bl.  303. 


HUNT  v.  POSTLEWAITi 

28  Iowa  427  (1870). 

Action  on  a  note  executed  by  Peter  Mertz  and  W.  H.  Postle- 
wait ;  the  latter  signed  the  note  "as  surety"  for  the  former,  a'nd  those 
words  were  annexed  to  his  signature.  This  suit  is  brought  against] 
Postlewait  alone,  the  principal  maker  being  a  nonresident.  The/ 
defense  is  that  he  was  only  surety,  and  the  plaintiff  had,  by  con- 
tract, extended  the  time  of  payment  to  the  principal  without  his  con- 
sent, and  the  principal  is  now  insolvent.  Trial  to  a  jury;  verdict 
and  judgment   for  defendant.     Plaintiff  appealed   to  the   general 


EXTEXSIOX    OF    TIME 


-(HoT 


451 


term,  where  the  judgment  of  the  district  court  was  affirmed.     ITe 
now  appeals  to  this  court. 

Cole,  Ch.,  J. :  Upon  this  record  and  the  assignment  of  errors, 
there  are  substantially  but  two  points  for  our  decision :  First,  as 
to  the  sufficiency  of  the  evidence.  The  only  testimony  introduced 
by  defendant  was  the  deposition  of  the  principal  maker  of  the 
note;  and  the  statement  on  oath  of  the  defendant,  that  he  was  only 
surety  and  had  no  knowledge  of  and  gave  no  consent  to  any  agree- 
ment for  extension  of  time  for  payment.  The  substance  of  Peter  . 
Mertz's  testimony  is  found  in  the  following  extracts  from  his 
deposition  : 

"Int.  4.  When  said  note  became  due,  was  the  time  of  payment 
extended  ? 

"Ans.    When  the  note  became  due  and  payable  the  time  was  not 
extended  to  any  particular  time ;  but  the  plaintiff  Hunt  said  to  me,  1 
if  I  could  use  the  money  and  make  the  interest  on  it,  I  might  keep  . 
it.     I  paid  up  the  interest  for  the  year,  but  said  Hunt  did  not  ask 
me  to  pay  the  principal. 

"Int.  5.    What  consideration  did  you  pay  for  such  extension? 

"Ans.  When  the  note  was  made,  I  agreed  to  pay  the  plaintiff 
twenty  per  cent,  for  the  use  of  the  money ;  he  paid  me  four  hun- 
dred dollars,  and  I  gave  him  my  note  (the  one  in  suit)  for  four 
hundred  and  forty  dollars ;  at  the  end  of  the  first  year  I  paid  him 
his  interest,  as  agreed,  at  twenty  per  cent. 

"Int.  6.  How  long  was  the  time  of  payment  on  said  note  ex- 
tended? 

"Ans.  I  don't  recollect  as  there  was  any  certain  time  set ;  plain- 
tiff merely  told  me,  as  I  said  before,  if  I  could  make  the  interest 
on  the  money,  to  keep  it  and  pay  him  the  interest.    *    *    * 

"Int.  8    How  much  did  you  pay   for  such  extensions? 

"Ans.  No  extensions  were  granted  by  the  plaintiff  except  as  I 
have  explained  ;  I  paid  nothing  extra  in  consideration  of  his  allow- 
ing the  note  to  run,  except  the  twenty  per  cent,  interest  originally 
agreed  upon,  and  this  I  paid  as  long  and  as  fully  as  I  was  able. 
The  plaintiff  said  to  me,  at  the  end  of  the  first  year,  if  you  want 
to  keep  the  money  and  will  pay  me  the  interest,  you  can  do  so ; 
at  the  end  of  the  second  year  he  said  the  same  thing,  or  words  to 
that  effect.  I  don't  recollect  whether  I  paid  him  interest  two  or 
three  years,  but  the  last  time  I  paid  him  I  did  not  pay  the  whole 
interest,  but  agreed  to  pay  the  balance  in  a  short  time." 

Having  all  the  evidence  before  us,  in  the  very  language  of  the 
witness  and  without  his  presence,  precisely  as  the  jury  had  it,  we 
have  no  hesitation  in  holding  that  their  verdict  was  contrary  to  the 
evidence,  and  the  motion  for  a  new  trial  should  have  been  sus=_^ 
tained  for  that  reason.  It  is  apparent  that  there  was/ no  considera- 
tion  for  the  agreement  to  let  the  principal  keep  the  money  beyond 
that  which  existed  without  such  agreement;  and  surely  that  agree- 


tcnl 


."452 


SURETYSHIP    DEFENSES 


ment  could  not  have  been  successfully  pleaded  as  a  defense  to  a 
suit'  upon  the  note  brought  at  any  time.    /Unless  the  agreement  is" 


made  upon  a  consideration,  and  would  constitute  a  detense  to_the 
note  at  some  time,  it  can  not  operate  to  discharge  the  surety.  Mere 
forbearance  is  not  enough,  even  though  the  debtor  shall  afterward 
pay  therefor  more  than  he  was  obliged  by  law  to  pay.  The  fact 
that  the  rate  of  interest  originally  agreed  to  be  paid,  and  which 
was  afterward  paid,  was  usurious,  can  not  affect  this  case. 

Second,  as  to  the  instructions.  The  court  instructed  the  jury : 
"If  on  or  after  the  maturity  of  the  note  it  was  agreed  between  the 
plaintiff  and  Mertz,  the  principal  maker,  that  if  Mertz  would  pay 
interest  on  the  note  at  the  rate  of  twenty  per  cent.,  the  time  of 
payment  should  be  extended ;  and  Mertz  paid  such  twenty  per  cent., 
and  this  without  the  knowledge  or  consent  of  the  surety  Postlewait, 
then  the  surety  would  be  released,  and  your  verdict  should  in  that    . 

J  case  be  for  defendant." 

This  instruction  is  misleading,  and  is  vulnerable  to  these  objec- 
tions :  It  leaves  out  of  view  the  question  whether  the  twenty  per 
cent,  interest  was  the  same  rate  as  was  originally  agreed  to  be  paid ; 
it  does  not  require  the  jury  to  find  any  consideration  for  thg_agxee- 
ment  to  extend  the  time  of  payment ;  nor  does  it  require  them  to 
find  that  the  interest  was  paid  in  advance,  or  pursuant  to  the  agree- 
ment for  extension.  If  the  twenty  per  cent,  interest  was  agreed  to 
be  paid  by  the  original  contract,  then  the  subsequent  agreement  to 
pay  it  cast  no  new  or  different  obligation  upon  the  principal ;  or 
if  there  was  no  consideration  for  the  agreement  to  extend;  or  iif  _ 
the  interest  was  not  paid  in  advance,  and  was  paid  pursuant  to  the 
original  contract,  then  the  surety  would  not  be  released,  and  their 
verdict  should  not  be  for  defendant. 

We  need  not  notice  the  instructions  further,  as  the  point  first 
above  ruled  will  doubtless  be  decisive  of  the  case. 

Reversed. 

See  also  Parmelee  v.  Thompson,  45  N.  Y.  58,  6  Am.  Rep.  33  ;  Olmstead  v. 
Latimer,  158  N.  Y.  313,  53  N.  E.  5,  43  L.  R.  A.  685 ;  Fair  v.  Pengelly,  34  Up. 
Can.  (C.  B.)  611. 


HARRISON  BERRY  v.  BAXTER  C.  PULLEN  ET  AL 
69  Maine  101,  31  Am.  Rep.  248  (1879). 


1/ 


Assumpsit  on  the  following  promissory  note :  "Palermo,  Decem- 
ber 23,  1870.  For  value  received,  we  jointly  and  severally  promise 
to  pay  Harrison  Berry  or  bearer,  one  hundred  dollars,  in  one  year 
from  date,  with  interest.  B.  C.  Pullen.  Surety,  E.  W.  Pinkham." 
The  defendant  Pullen  was  defaulted.  The  other  a  brief  statement 
that  he  signed  the  note  declared  on  as  surety  only ;  that  he  received 


EXTENSION    OF   TIME  453 


to± 


no  consideration  therefor ;  that  he  signed  it  for  the  accommodation 
only  of  Baxter  C.  Pullen,  as  the  plaintiff  well  knew ;  that,  subsequent 
to  the  time  when  he  so  signed,  the  plaintiff,  without  the  knowledge 
or  consent  of  said  Pinkham  and  for  a  valuable  consideration,  ex- 
tended the  time  of  payment  thereof  to  a  certain  definite  time,  after 
the  time  of  payment  specified  in  the  note,  and  after  the  maturity 
thereof,  whereby  the  said  Pinkham  was  released. 

There  was  evidence  tending  to  show  that  there  was  an  oral  agree- 
ment between  the  payee  and  the  principalmaker  that  the  former 
would  extend  the  time  of  payment  so  long  as  the  latter  would  pay 
ejghT"per  cent,  interest ;  that  some  time  thereafter  elapsed  before 
bringing"  th'e'suit,  and  that  nothing  wa"s  paid  on  the  note.  The  ma- 
terial part  of  the  evidence  on  the  point  raised  is  stated  in  the  opin- 
ion. 

The  verdict  was  for  the  defendant;  and  the  plaintiff  moved  to  set 
it  aside  against  law  and  evidence. 

,  Virgin,  J. :     Probably  no  principle  has  ever  been  in  substance  - 
more  frequently  repeated  by  courts  than  that  a.  surety  is  entitled  to 
have  his  contracts  performed  according  to  its  terms;  and  that  if/ 
any  alteration,  either  in  substance  or  time  of  performance,  is  made    ' 
therein,  without  the  surety's  consent,  by  parties  knowing  his  rela- 
tion  to  it,  he  thereby  becomes  absolved  from  all  further  liability 
thereon.     • 

The  rights  and  liabilities  of  sureties  ar2  well  defined.  Whether 
or  not  a  note,  executed  by  two  makers,  discloses  the  fact  that  one  of 
them  is  a  surety  for  the  other,  their  respective  liability  to  the 
payee  finds  expression  in  the  terms  of  the  note — each  being  alike 
liable  to  pay  it  according  to  its  tenor.  Moreover  it  is  not  only  the 
legal  duty  of  the  surety  to  pay  the  note  at  its  maturity,  but  it  is 
also  his  legal  privilege  to  do  so,  for  then  he  may  at  will  seek  in- 
demnity from  the  principal.  For  whenever  the  surety  has  paid  the 
note  to  the  holder,  he  has  the  right  forthwith  to  sue  and  recover  it 
of  the  principal,  in  an  action  at  law,  and  be  subrogated  to  all  the 
rights  of  the  holder  in  equity,  among  which  is  a  suit  by  the  latter 
against  the  principal.  If,  therefore,  the  holder  has  by  any  act  pre- 
cluded or  estopped  himself  from  demanding  payment  of  the  prin- 
cipal, or  has  entitled  the  principal  to  claim  exemption  from  pay- 
ment during  a  single  day  beyond  the  time  of  the  maturity  of  the 
note,  his  rights  and  remedies  thereby  become  prejudiced,  and  he  is 
thereby  discharged.  CT£or  while  it  is  the  privilege  of  the  surety  to 
become  subrogated  to  the  rights  of  the  holder  by  paying,  that  is 
the  extent  of  his  rights.  Therefore  if  the  holder  has  bound  him- 
self, withouTrfeservation,  not  to  receive  payment  from  the  principal, 
the  latter  may  enjoin  him  from  receiving  it  from  the  surety,  who 
will  thereby  be  prevented  from  asserting  his  legal  and  equitable 
rights  against  the  principal  and  consequently  be  discharged. 

One  of  the  most  common  modes  by  which  creditors  let  sureties 


454  SURETYSHIP    DEFENSES 

off  from  their  liability,  is  by  giving  time  to  their  principals.  Thus 
if  the  holder  of  a  promissory  note,  knowing  one  of  the  makers  to 
be  a  surety  for  the  other,  agrees  with  the  principal,  without  the 
knowledge  and  consent  of  the  surety,  to  enlarge  the  time  of  pay- 
ment thereof  even  for  a  day,  the  surety's  liability  is  thereby  ter4 
minated.  Mere  gratuitous  forbearance  of  whatever  duration  in-j 
side  of  the  limitation  bar,  will  not  discharge ;  for  it  is  not  the  fori 
bearance,  but  the  contract  which  operates  the  discharge.  Page  v\ 
Webster,  15  Maine  249.  But  before  a  surety,  whose  name  was  de- 
liberately and  understandingly  placed  upon  a  note  to  give  it  credit, 
can  be  thus  absolved  from  liability,  the  law  as  well  as  justice  and 
equity  requires  that  there  shall  be  a  valid,  binding  contract — one 
minded  on  a  sufficient  consideration,  and  the  effect  of  which  shall 
be  to  give  further  definite  time  to  the  principal,  without  th"e  con- 
sent of  the  surety. 

The  matter  of  consideration  and  time  in  such  contracts  is  co- 
piously illustrated  by  a  large  number  of  cases,  English  and  Ameri- 
can, collated  in  the  notes  to  Lead.  Cas.  Eq.  under  Rees  v.  Berring- 
ton,  pp.  1867  et  seq.,  and  Brandt  on  Sur.  and  Guar.  ch.  14,  401  et 
seq. 

Thus,  it  is  said,  the  true  question  is  whether ,.thp,.,agreemetif  tr> 
give  time,  or  to  vary  the  contract  in  any  other  particular,  could 
have  been  enforced  against  the  creditor,  or  as  a  cause  of  action. 

1  )raper  v.  Romeyn,  18  Barb.  166.     Approved  in  Wheeler  v.  Wash- 
burn, 24  Vt.  293;  Turrill  v.  Boynton,  23  Vt.  293  •  Greeley  v.  Dov 

2  Met.  176. 

Again  the  test  is  expressed  a  little  differently^  beingjwhether  the 
1  creditor  would  have  made  himself  liable  to  the  'principal  by  prcP" 
|  ceeding  against  him  immediately  after  giving  the  promise  of  for- 
bearance; for  if  he  would  not,  the  legal  relation  of  the  parties  is 
unchanged,  and  there  is  no  equitable  ground  for  exoneration  of  the 
surety  and  therefore  there  can  be  no  discharge.  Lead.  Cas.,  supra ; 
Leavitt  v.  Savage,  16  Maine  72. 

"By  a  valid  agreement  to  give  time,"  say  the  court  in  Veazie  v. 
Carr,  3  Allen  14,  "is  meant  an  agreement  for  the  breach  of  which 
the  maker  has  a  remedy  either  at  law  or  in  equity."  And  the  au- 
thorities generally  concur  in  holding  that  the  requisites  of  a  valid 
agreement  are  essential,  otherwise  the  creditor  is  not  bound,  and  the 
rights  of  the  parties  not  changed;  and  if  not  changed,  the  original 
contract  is  in  force  and  may  be  performed. 

There  are  numerous,  cases  above  referred  to  holding  that,  while 
the  absolute  payment  by  the  principal  and  acceptance  by  the  cred- 
itor of  usurious  interest  in  a  good  consideration  for  an  enlarge- 
ment of  the  time  of  payment,  an  executory  contract  to  pay  such 
interest  is  not,  and  that  therefore  it  will  not  absolve  a  surety. 
Among  the  cases  in  point  is  the  early,  well-considered  case  of 
Tudor  v.  Goodloe,   1  B.  Mon.  322.     See  also  Vilas  v.  Jones,   10 


EXTENSION    OF   TIME  455    ^  ■ 

Paige.  80;  Burgess  v.  Darcy,  33  Vt.  618;  Smith  v.  Hyde,  36  Vt. 
303 ;  Myers  v.  First  Nat.  Bank,  78  111.  257.  In  a  word  all  concur 
in  holding  that  the  contract  must  be  binding  to  effect  the  release. 
This  rule  must  exclude  oral  contracts  which  the  statute  of  frauds 
requires  to  be  in  writing.  And  so  it  has  been  expressly  held.  Thus, 
where  the  executrix  of  the  acceptor  of  a  bill  of  exchange  orally 
promised  to  pay  the  holder  out  of  her  own  estate,  provided  he 
would  forbear  to  sue,  and  he  did  forbear  in  consequence,  it  was 
held  that  the  drawer  was  not  discharged,  the  promise  being  within 
the  statute  of  frauds.  Best,  C.  J.,  said:  "If  the  promise  made  by 
the  executrix  be  considered  a  promise  to  pay  the  debt  with  interest 
out  of  the  assets,  it  gave  no  claim  to  the  holder  beyond  what  the 
bill  gave  him.  *  *  *  If  it  is  to  be  taken  to  be  a  personal  promise 
of  the  executrix,  it  is  void  under  the  statute  of  frauds,  not  being  in 
writing."     Philpot  v.  Bryant,  4  Bing.  719. 

To  the  same  point  is  Agee  v.  Steels,  8  Ala.  948 ;  the  promise  there 
being  within  another  section  of  the  statute  of  frauds — one  relating 
to  an  interest  in  land. 

The  application  of  these  rules  to  the  facts  in  the  case  at  bar  is 
decisive  of  the  case  in  favor  of  the  plaintiff.  The  principal  (Pul- 
len)  is  the  witness  who  testified  to  the  agreement.  His  testimony 
on  this  point  is,  in  brief,  that  a  short  time  after  the  note  was  due 
he  saw  the  plaintiff,  when  the  plaintiff  told  the  witness  that  the  note 
was  due  and  wanted  to  know  what  he  wanted  to  do  about  it.  Wit- 
ness answered,  "I  told  him  I  hadn't  the  money.  He  told  me  that 
if  I  would  give  him  eight  per  cent.  I  might  have  that  money.  Said 
he,  you  can  have  it  as  long  as  you  want  it.  I  told  him  I  would 
do  it." 

The  intention  of  the  parties,  as  shown  by  this  testimony,  is  that 
from  that  time  forward,  so  long  as  Pullen  kept  the  money,  he 
should  pay  eight  per  cent,  interest.  If  the  agreement  had  been  re- 
duced to  writing  and  signed  it  would  have  been  a  valid  contract 
and  one  which  could  be  enforced;  and  as  the  parties  then  would/  A 
have  substituted  another  contract  for  the  original,  without  thd 
knowledge  or  consent  of  the  defendant,  he  would  have  been  dis- 
chargecLj  )But  the  contract  not  being  binding,  the  rights  of  the  par- 
ties were  m  nowise  changed  and  the  surety  would  not  be  thereby 
discharged.     The  verdict  being  against  law  must  be  set  aside. 

Verdict  set  aside. 

Appleton,  C.  J.,  Danforth,  Peters  and  Libbey,  JJ.,  concurred. 


456 


SURETYSHIP    DEFENSES 


)  RIVER  NATIONAL  BANK  v.  ERMINA  C.  BRAY. 
ET  AL. 


105  Tex.  312,  148  S.  W.  290  (1912). 

Mr.  Justice  Phillips  delivered  the  opinion  of  the  court. 
On  April  11,  1907,  E.  F.  Bray  and  Erminia  C.  Bray,  his  wife, 
executed  and  delivered  to  the  Red  River  National  Bank  of  Clarks- 
ville,  Texas,  their  two  promissory  notes,  payable  to  the  bank,  ag- 
gregating $4,133.30,  principal,  the  first  maturing  October  15,  1907, 
and  the  other  December  15,  1907,  to  secure  the  payment  of  which 

■  they  at  the  same  time  granted  a  deed  of  trust  lien  upon  certain  real 

3Testate,  situated  in  Clarksville,  the  separate  property  of  Mrs.  Bray. 
Neither  of  the  notes  was  paid  at  maturity,  but  between  October  15. 
1907,  the  date  of  the  maturity  of  the  first  note,  and  July  7,  1908. 
payments  amounting  to  $1,500.00  were  made  upon  that  note.     Re- 

■'Aruest  was  made  by  Bray  for  an  extension  of  the  maturity  of  both 
notes,  and  finally,  on  July  7,  1908,  in  consideration  of  the  payment  in 

|  advance  of  the  interest  that  would  accrue  on  them  to  October  1,  1908, 
the  bank  agreed  with  Bray  to  extend  their  time  of  payment  to  that 
date.  Upon  default  then  made  in  their  payment  the  bank  at- 
tempted to  enforce  its  deed  of  trust  by  a  sale  of  the  property  under 
the  power  afforded  by  its  provisions.  Thereupon  Mrs.  Bray,  joined 
by  her  husband,  brought  this  suit  tP—  enjoin  such  foreclosure  pro- 

1  ceedings  upon  the  ground  that  the  extensjon_^JJtie..niaturity  of  the 
notes  was  without  her  consent,  whereby  her  property  was  released 
as  security  for  the  debts.  Thej  bank^  among  otHeT^rnngs^ "an- 
swered that  it  had  been  inducedAo^grant^  the  extension  by  certain 

A  fraudulent  and  false  representations  made  to  it  by  Bray  for  the 
purpose  of  effecting  the  release~7H"~1yfrsr~Bray's  property  as  secu- 
rity for  the  debt  by  duping  it  into  an  a^T^menTT5r~j'He~exten s i on . 
By  cross-action  it  sought  recovery  for  its  defJttanor-foreclosure  of 
its  lien.  Judgment  in  the  trial  court  resulted,  through  a  peremp- 
tory instruction,  in  favor  of  Mrs.  Bray,  canceling  the  deed  of 
trust  lien,  and  denying  to  the  bank  recovery  upon  its  notes  because 
of  bankruptcy  proceedings  instituted  by  Bray  and  then  pending. 
The  Court  of  Civil  Appeals  has  affirmed  that  judgment,  holding 
in  its  opinion  that  there  was  no  evidence  that  Mrs.  Bray  consented 
to  the  extension.  It  further  finds  that  there  was  evidence  sufficient 
to  raise  the  issue  that  the  bank  was  deceived  into  agreeing  to  the 
extension  by  a  fraud  practiced  upon  it  by  Bray,  as  was  alleged  by 
the  bank,  but  holds  that  the  operation  of  the  agreement  to  extend, 
notwithstanding  the  practice  of  a  fraud  in  its  procurement,  was  not 
otherwise  than  to  work  a  release  of  the  wife's  property  as  security, 
inasmuch  as  an  agreement  so  induced  was  not  void  in  the  sense  that 


0\>7 


AAA-' 

j 

EXTENSION    OF    TIME  457 

a  stranger  would  be  entitled  to  disregard  it,  but  at  most  was  merely 
voidable  at  the  instance  of  the  bank  as  between  itself  and  Bray.       ^ 

The  established  rule  of  law  is  thatlif^^without  the  consent. of  the 
surety,  a  binding  agreement  is  made  Detween  the  creditor  and  the 
principal  debtor,  for  an  extension  of  the  maturity  of  the  debt,  the 
surety  is  released  ;  and  the  effect  is  the  same  as  to  property  that 
stands  in  the  relation  of  a  surety,  as  did  the  property  of  Mrs.  Bray 
in  this  case.  The  reason  of  the  rule  demonstrates  its  justness  as 
a  principle  as  well  as  its  necessity  in  the  business  affairs  of  the 
people,  for  at  any  time  after  the  maturity  of  the  debt  the  surety, 
for  his  own  protection,  should  possess  the  right  to  pay  it  and  pro- 
ceed against  the  principal  for  indemnity,  and  such  right  is  im- 
paired if  the  creditor  enter  into  a  valid  contract  with  the  princi- 
pal for  an  extension  of  the  time  of  payment.  The  law  therefore 
visits  upon  the  creditor  the  deserved  consequence  of  his  so  impair- 
ing the  right  of  the  surety  by  releasing  the  surety  from  liability.  : 
Benson  v.  Phipps,  87  Tex.  578,  47  Am.  St.  128.  The  true  test  in 
every  such  case  accordingly  is  whether  the  agreement  of  extension 
is  such  as  to  deny  to  the  surety  the  exercise  of  this  right,  which 
inheres  in  his  relationship  and  which  the  law  places  at  his  disposal 
and  command  as  a  benefit  and  protection  immediately  upon  the  ) 
maturity  of  the  debt.  If  the  agreement  of  extension  be  a  binding 
one,  its  effect  clearly  is  to  deprive  him  of  his  right.  But  if  the 
agreement  be  not  a  binding  one,  it  remains  intact  and  unprejudiced. 
What  the  law  speaks  of  in  this  sense  as  "a  binding  agreement" 
is  an  agreement  that  is  conclusive  upon  both  the  creditor  and  the 
principal ;  an  agreement  that  both  effectually  stays  the  hand  of  the 
creditor,  and  yields  to  the  principal  the  full  benefit  of  the  indul- 
gence ;  an  agreement  that  neither  can  avoid,  but  which  both  must 
respect ;  and  which,  because  of  its  inviolable  character,  operates 
to  the  harm  of  the  surety.  It  does  not  mean  an  agreement  that 
the  principal  has  induced  by  his  deceit  and  fraud,  and  is  therefore 
wanting  in  that  integrity  which  the  law  demands  in  contracts  that 
it  will  enforce.  It  does  not  mean  an  agreement  which  is  the  result 
of  the  principal's  artifice,  bearing  the  semblance  of  a  crafty  trick 
and  actuated  by  a  dishonest  design,  under  which  the  creditor  is 
beguiled  into  a  position  where  his  forbearance,  thus  influenced,  is 
turned  against  him,  and  is  availed  of  to  destroy  the  security  for 
his  debt.  The  law  will  not  so  protect  the  fruits  of  the  fraud  of  the 
principal,  or  so  penalize  the  magnanimity  of  the  creditor.  Such  an 
agreement  is  not  binding  upon  the  creditor.  If  it  is  not  binding 
upon  the  creditor,  it  is  not  such  an  agreement  as  will  operate  to  the 
disadvantage  of  the  surety  or  the  prejudice  of  his  rights.  If  the 
creditor  should  elect  to  stand  upon  it  after  notice  of  the  fraud  and 
request  made  by  the  surety  that  he  proceed  against  the  principal, 
the  surety  would  be  released  under  arts.  3811  and  3812  of  the  Re- 
vised Statutes,  the  first  of  which  provides  that  when  the  right  of 


453 


SURETYSHIP   DEFENSES 


action  has  accrued  upon  the  obligation,  the  surety  may  require  by 
notice  in  writing,  that  the  creditor  forthwith  institute  suit  upon  it ; 
and  the  other  providing  that  in  the  event  he  fails  to  do  so,  as  there- 
in provided,  after  such  notice,  the  surety  shall  be  discharged.  If 
the  agreement  is  brought  about  by  the  fraud  of  the  principal  and 
[i^ therefore,  not  binding  upon  the  creditor,  no  valid  extensioji~af 
the  maturity  results,  the  right  of  action  would  be  regarded  as  hav- 
ing accrued  upon  the  original  maturity ;  and  the  statute  would  be 
available  to  the  surety,  j  Nor  would  such  an  agreement  foreclose 
the  right  of  the  surety  for  his  own  protection  to  pay  the  debt  and 
proceed  himself  against  the  principal  for  indemnity.  Such  right 
of  action  would  be  a?  complete  in  the  surety  as  in  the  creditor,  as 
the  principles  of  subrogation  would  cast  upon  him  all  the  rights 
and  remedies  of  the  creditor,  including  the  defenses  of  fraud  and 
deceit.  Brandt  on  Suretyship,  §§  298  and  322.  As  such  an  agree- 
ment would  not  impair  the  right  of  the  surety,  no  reason  can  exist 
why  it  should  destroy  the  security  of  the  creditor. 

The  Court  of  Civil  Appeals,  as  stated  in  its  opinion,  recognizes 
that  if  this  were  a  contract  merely  between  the  bank  and  Bray, 
the  bank  would  be  entitled  to  be  heard  upon  its  plea,  and  that  as 
between  them  the  agreement  was  subject  to  be  avoided  by  the  court 
because  of  the  fraud  alleged  to  have  been  perpetrated  by  Bray  in 
its  procurement.  If  it  was  thus  subject  to  be  set  aside  as  between 
the  bank  and  Bray,  it  was  not  a  binding  agreement  between  them, 
and  can  not  be  held  operative  to  release  the  surety.  The  surety 
can  not  invoke  for  his  release  an  agreement  by  which  the  creditor 
is  not  bound,  regardless  of  whether  it  is  binding  upon  the  principal. 
It  is  only  an  agreement  for  a  new  maturity  which  is  binding  upon 
the  creditor  and  prevents  enforcement  of  the  principal's  liability 
that  impairs  the  surety's  right.  If  the  creditor  is  not  bound  by  the 
agreement  and  the  principal's  liability  may  still  be  enforced,  what 
possible  ground  of  complaint  can  the  surety  have,  and  how  is  he 
in  any  wise  prejudiced  ?  It  is  not  necessary  that  the  agreement  of  ex- 
tension be  void  and  not  merely  voidable,  as  is  held  by  the  learned 
judge  writing  the  opinion  of  the  Court  of  Civil  Appeals.  The  effect 
of  a  judgment  in  favor  of  the  bank  upon  the  issue  would  be  to 
make  the  agreement  void  ab  initio  and  of  no  effect  whatever.  This 
court  held  in  Benson  v.  Phipps,  supra,  in  discussing  the  right  of  a 
surety  under  an  extension  agreement,  that  "if  the  creditor  is  not 
bound  by  the  promise  to  extend,  it  is  clear  there  is  no  release, 
which  we  deem  the  correct  rule. 

[If  the  fraud  of  the  principal  is  sufficient  to  absolve  the  creditor 
from  an  agreement  induced  by  it,  as  between  himself  and  the  prin- 
cipal, it  ought  to  be  sufficient,  and  we  think  it  is,  to  prevent  the 
surety  from  profiting  by  it  to  the  destruction  of  the  creditor's  se- 
curitv.  In  the  well  considered  opinion  of  Judge  Kev,  in  the  case 
of  Officer  v.  Marshall.  9  Texas  Civ.  App.  428,  29  S.  W.  246,  where 


0^ 


EXTENSION    OF   TIME  459 


the  sureties  claimed  to  have  been  released  by  an  acceptance  by  the 
creditors  of  a  renewal  note  to  which  the  signatures  of  the  sure- 
ties were  forged,  it  is  said :  "When  one  is  induced  to  enter  into 
a  contract  by  fraud  practiced  by  the  other  party  thereto,  the  con- 
tract is  not  binding  upon  the  person  defrauded,  although  the  latter 
may  have  received  a  consideration.  It  follows,  therefore,  that  if 
appellants  accepted  another  note  in  payment  of  the  one  sued  on, 
with  appellees'  names  forged  thereto,  and  they  believed  appellees' 
signatures  to  be  genuine,  the  conduct  of  Marshall  in  presenting  the 
forged  note,  and  thereby  procuring  the  note  sued  on,  and  an  ex- 
tension of  time  on  the  debt,  was  a  fraud  upon  appellants,  and,  al- 
though he  may  have  paid  interest  in  advance,  or  some  other  valu- 
able consideration,  the  agreement  to  extend  the  time  was  not  binding 
upon  appellants."  Numerous  other  holdings  are  to  the  same  effect. 
'The  principle  announced  in  that  case  should  control  this  one.  As 
the  Court  of  Civil  Appeals  has  found  that  the  evidence  in  the  case 
was  sufficient  to  raise  the  issue  of  fraud  in  the  procurement  of 
the  bank's  promise  to  extend  the  time  of  payment,  it  follows  that 
its  judgment  and  the  judgment  of  the  District  Court  should  be  re- 
versed and  the  cause  remanded  to  the  District  Court  for  the  trial 
of  the  issue,  and  it  is  so  ordered. 
Reversed  and  remanded. 

See  also  Corydon  Deposit  Bank  v.  McClure,  140  Ky.  149,  130  S.  W.  971, 
Ann.  Cas.  1912B,  484n. 


'I 


SAMUEL  K.  TURNBULL  v.  WILLIAM  BROCK 
31  Ohio  St.  649  (1877). 

The  plaintiff  in  error  brought  an  action  against  Elijah  S.  Carr, 
D.  S.  Horney,  and  the  defendant  in  error,  Brock,  in  the  court  of 
common  pleas,  upon  a  promissory  note  executed  by  said  defendants 
July  13,  1876,  and  given  for  the  payment  of  $1,829,  at  five  months 
and  ten  days  from  its  date.  Brock  alleged  by  his  answer  that  he 
was  surety  only  on  the  note  for  Carr  and  Horney,  who  were  prin- 
cipal makers  ;  that  when  the  note  became  due,  the  plaintiff  in  con- 
sideration of  the  payment  of  $200,  then  made  to  him  by  Carr  and  _, 
Horney  to  apply  on  the  amount  due,  agreed  to  extend  the  time  for 
the  payment  of  balance  until  the  10th  day  of  the  month  then  next, 
and  that  this  agreement  for  such  extension  was  made  without  his 
knowledge  or  assent.  This  agreement  was  denied  by  the  reply.  / 
Carr  and  Horney  were  in  default.  A  trial  was  had  on  the  issue 
thus  joined,  and  resulted  in  a  verdict  and  judgment  for  the  plain- 
tiff against  Brock.  On  error  the  district  court  reversed  the  judg- 
ment for  an  alleged  erroneous  instruction  to  the  jury,  not  necessary' 


460 


SURETYSHIP    DEFENSES 


here  to  notice.    The  agreement  set  up  in  the  answer  seems  to  have 
been  treated  in  both  courts  below  as  valid,  if  established. 

By  the  court.  There  is  manifest  error  in  the  judgment  of  the 
district  court.  It  is  immaterial  whether  there  was  error  in  the 
instructions  given  to  the  jury  in  the  court  of  common  pleas  or  not. 
The  plaintiff  was  entitled  to  judgment  on  the  pleadings.  Code,  p. 
384.  A  promise  not  supported  by  a  consideration  creates  no  legal, 
obligationj_aiid  hence  its  nonperformance  creates  no  legal  liability, 
['art  pavment  of  a  promissory  note  or  debt,  already  due,  is  not 
*)  a  sufficient  consideration  for  an  agreement  to  extend  the  time  for 
i  the  payment  of  the  balance.  The  makers  of  the  note  were  under  a 
legal  obligation  to  pay  the  whole  amount,  which  necessarily  included 
every  part,  and  the  plaintiff,  in  receiving  a  part,  obtained  only  what 
and  indeed  less  than  he  was  entitled  to.  Xo  benefit,  profit,  or  ad- 
vantage, in  a  legal  sense,  resulted  to  the  plaintiff,  nor  any  detriment' 
or  loss  to  the  defendant.  The  promise  alleged,  in  point  of  legal 
obligation,  was  in  no  wise  different  than  if  it  had  been  a  mere 
naked  agreement  to  extend  the  time  for  the  payment  of  the  entire 
amount  due. 

Motion  granted.  Judgment  of  the  district  court  reversed,  and 
that  of  the  common  pleas  affirmed. 

Accord :  Stroud  v.  Thomas,  139  Cal.  274,  72  Pac.  1008,  96  Am.  St.  Ill ;  Hal- 
liday  v.  Hart.  30  N.  Y.  474. 

Payment  of  interest  in  advance  is  good  consideration  for  an  agreement  to 
extend  the  time.  Prussing  v.  Lancaster,  234  111.  462,  84  X.  E.  1062 ;  Kaler  v. 
Hise,  79  Ind.  301. 

y    Payment  of  interest  in  advance  is  not  as  a  matter  of  law  evidence  of  an 

[agreement  to  extend  the  time.    New  York  Life  Ins.  Co.  v.  Casey,  178  X.  Y. 

381,  70  X.  E.  916;  Agricultural  Bank  v.  Bishop,  72  Mass.  317;  Haydenville 

Savings  Bank  v.  Parsons,  138  Mass.  53 ;  Mariner's  Bank  v.  Abbott,  28  Maine 

280. 

Payment  of  interest  in  advance  is  prima  facie  evidence  of  an  agreement  to 
]  extend  the  time.    English  v.  Landon,   181   111.  614,  54  X.   E.  91 1>  Revell  v. 
!  Thrash,  132  X.  Car.  803,  44  S.  E.  596 ;  Osborn  v.  Low,  40  Ohio  SfT  347 ;  Law- 
rence v.  Thorn,  9  Wyo.  414,  64  Pac.  339;  People's  Bank  v.  Teai  suns,  30  Vt.  711. 
Payment  of  interest  in  advance  is  conclusive  evidence  of  an  agreement  to 
extend  the  time.    Gardner  v.  Gardner,  23  S.  Car.  588;  Hubbard  v.  Ogden,  22 
Kans.  363;  Preston  v.  Henning,  69  Ky.  556;  Jarvis  v.  Hyatt,  43  Ind.  163 


LEWIS  D.  TURRILL 


v.  B.  &  H.  BOYNTOX  AND  H.  C.  &  N/ 
B.  FLAXAGAX  / 


23  Vt.  142  (1851). 

Assumpsit  upon  a  promissory  note  for  $400,000,  dated  March 
20,  1847,  payable  to  the  plaintiff,  on  demand,  and  signed  by  the 
defendants,  and  by  Jedidiah  Boynton.  Plea,  the  general  issue,  and 
trial  by  jury,  March  term,  1850 — Bennett,  J.,  presiding. 


IB 


\)fL       Aj_  EXTENSION    OF    TIME  461 

On  trial,  the  plaintiff  gave  in  evidence  the  note  declared  upon. 
The  defendants  H,._C.  &  N.  B.  Flanagan  claimed  that  they  were 
hnt_.snre.ties  upnn  the  note,  and  that  they  had  been  released  from 
their  liability  by  the  act  of  the  plaintiff — and  the  defendants  gave 
evidence  tending  to  prove  that,  previous  to  the  execution  of  this 
note,  the  plaintiff  had  lent  about  $600.00  to  Boynton  &  Burritt, 
on  a  usurious  contract,  all  of  which  had  been  paid,  except  about 
$160,  for  which  the  plaintiff  held  the  note  of  Boynton  &  Burritt, 
which  included  about  $65.00  usurious  interest  upon  the  original 
note;  that  the  plaintiff  assigned  that  note,  for  $163.00,  to  the  de- 
fendants B.  &  H.  Boynton,  and  let  them  have  other  money,  suffi-r 
cient  to  make  up  the  sum  for  which  the  note  in  suit  was  given,  j 
and  they  procured  the  other  defendants  to  sign  this  note,  as  sure- 
ties merely — which  was  known  to  the  plaintiff;  that  Boynton  & 
Burritt,  to  secure  their  note  for  $160.00  to  B.  &  H.  Boynton,  de- 
livered to  them  sundry  notes,  against  third  persons,  which  B.  & 
H.  Boynton  held,  until  the  agreement  hereafter  stated;  that  in 
July,  1848,  the  plaintiff,  the  defendant  Henry  Boynton,  and  Noble 
Boynton  and  Burritt,  of  the  firm  of  Boynton  &  Burritt,  met  to- 
gether— and  Noble  Boynton  claimed  that  the  plaintiff  should  repay 
to  his  firm  the  $65.00  extra  interest  above  mentioned — and  Henry 
Boynton,  for  B.  &  H.  Boynton,  the  principals  on  the  note  in  suit, 
wished  the  plaintiff  to  suspend  collecting  this  note ;  that  it  was 
then  finally  agreed  between  the  three  that  B.  &  H.  Boynton  should 
pay  to  Boynton  &  Burritt  the  said  sum  of  $65.00,  extra  interest, 
by  indorsing  that  amount  upon  the  $169.00  note,  and  should  sur- 
render to  Boynton  &  Burritt  that  amount  of  the  demands  turned 
out  by  them  to  secure  the  $169.00  note,  and  should  pay  to  the 
plaintiff  one  dollar,  and  the  plaintiff  should  extend  the  time  of 
payment  of  the  note  in  suit  for  one  year,  or  until  the  estate  of 
Jedidiah  Boynton,  who  had  deceased,  should  be  settled ;  and  that 
B.  &  H.  Boynton  did  accordingly  then  pay  to  the  plaintiff  one  dol- 
lar, and  Boynton  &  Burritt,  by  a  parol  agreement,  then  discharged 
the  plaintiff  from  all  liability  to  them  for  said  usurious  interest, 
and  surrendered  to  Boynton  &  Burritt  the  same  amount  of  usurious 
interest,  and  surrendered  to  Boynton  &  Burritt  the  same  amount 
of  notes,  previously  pledged  by  them  to  secure  the  $169.00  note. 
There  was  no  evidence  that  the  defendants  H.  C.  &  N.  B.  Flanagan 
had  any  knowledge  of  this  agreement,  or  in  any  way  consented  to 
it.  It  appeared  that  Jedidiah  Boynton's  estate  had  not  been  settled 
at  the  time  of  trial. 

The  court  held  that  as  the  note  in  suit  was  overdue  at  the  time 
the  agreement  for  forbearance  was  made,  as  claimed  by  the  defend- 
ants, there  was  no  evidence  tending  to  prove  such  an  agreement 
as  would  discharge  the  sureties — and  directed  the  jury  to  return  a 
verdict  for  the  plaintiff  for  the  amount  due  upon  the  note.  Excep- 
tions by  defendants. 


462 


SURETYSHIP    DEFENSES 


The  opinion  of  the  court  was  delivered  by 

Kellogg,  J.:  1.  The  first  question  presented  by  the  bill  of  ex- 
ceptions is  whether  the  agreement  made  by  the  plaintiff  and  the 
principals  to  the  note,  to  extend  the  payment  of  the  same,  supposing 
it  a  valid  agreement,  founded  upon  sufficient  considerations,  does 
in  law  discharge  the  sureties — the  agreement  being  made  without 
the  knowledge  and  consent  of  the  sureties,  and  the  note  being  at 
the  time  overdue. 

That  such  an  agreement,  if  made  before  the  note  comes  to  ma- 
turity, is  sufficient  to  discharge  the  sureties,  it  is  believed  all  the 
authorities  agree.  We  find  it  laid  down  in  the  elementary  works 
and  in  many  reported  cases,  in  general  terms  and  without  any 
qualification  as  to  whether  the  note  is  due  or  not,  that  an  agree- 
ment, founded  upon  sufficient  consideration,  and  entered  into  be- 
tween the  payee  and  principal,  without  the  assent  of  the  surety, 
extending  the  time  of  payment  beyond  the  time  limited  by  the  orig- 
inal contract,  does,  in  law,  operate  as  a  discharge  and  release  of 
the  surety.  Some  of  the  cases,  however,  seem  to  attach  some  im- 
portance to  the  question  of  whether  the  agreement  for  delay  is 
made  before  the  contract  falls  due,  and  appear  to  countenance  the 
idea  that  there  is  a  distinction  between  such  agreements  made 
before  and  those  made  after  the  contract  becomes  due.  While  in 
the  former  they  regard  its  effect  to  be  a  discharge  of  the  surety, 
in  the  latter  they  hold  it  to  be  inoperative,  at  least  not  a  release  of 
the  surety. 

There  are,  however,  numerous  authorities,  of  the  highest  re- 
spectability, where  no  such  distinction  is  taken  or  even  suggested, 
which  we  can  hardly  suppose  would  have  escaped  the  observation 
of  courts  and  counsel,  if  such  a  distinction  were  well  founded. 
Nor  can  we  discover  any  sound  principle  upon  which  the  distinction 
can  be  maintained.  It  is,  indeed,  said  that  where  the  agreement 
for  delay  is  made  after  the  note  becomes  due,  it  does  not  suspend 
the  creditor's  right  of  action ;  and  that  consequently  the  agreement 
does  not  operate  to  the  prejudice  of  the  surety.  This  is  assuming 
that  the  agreement  is  inoperative  for  all  the  purposes  for  which 
it  was  made.  Without  stopping  to  discuss  the  question  whether 
such  an  agreement  can  be  pleaded  as  a  temporary  bar  to  a  suit 
brought  in  violation  of  it  (which  we  are  inclined  to  think  may 
well  be  done),  can  it  be  doubted  that,  upon  proper  application  to 
a  court  of  chancery,  the  suit  would  be  enjoined?  That  such  would 
be  the  result  we  apprehend  there  can  be  no  doubt.  If  we  are  right 
in  this  conclusion,  it  is  equally  prejudicial  to  the  surety,  whether 
the  extension  of  payment  be  given  upon  an  agreement  made  before 
or  after  the  note  comes  to  maturity. 

2.  The  second  question  raised  by  the  exceptions  involves  an 
inquiry  as  to  the  validity  of  the  agreement,  by  force  of  which  the 
sureties  claim  that  they  are  released  from  their  liability  upon  the 


EXTENSION    OF    TIME  463 

note.  It  is  said  that  the  agreement  is  void  for  want  of  sufficient 
consideration — that  the  consideration  for  the  promise  of  forbear- 
ance by  the  plaintiff  is  usurious,  and  that  such  consideration  is  in- 
sufficient to  uphold  the  promise. 

We  do  not  see  but  the  consideration  must  be  conceded  to  be 
usurious.  It  is  true  that  the  payment  of  the  sixty-five  dollars  was 
to  Boynton  &  Burritt,  who  are  not  parties  to  the  note  in  suit ;  but 
the  payment  was  by  the  procurement  of  the  plaintiff,  for  his  benefit,' 
and  to  discharge-  his  liability  to  them ;  and  the  only  consideration 
for  this  payment  was  the  promise  of  the  plaintiff  to  give  further 
time  for  the  payment  of  the  note  in  suit.  It  was  therefore  the 
same  as  a  payment  of  the  sixty-five  dollars  to  the  plaintiff.  The 
payment  of  one  dollar  to  the  plaintiff  at  the  time  the  agreement 
was  made  was  of  the  same  character  and  for  the  same  object — to 
obtain  an  extension  of  time  for  paying  the  note  of  four  hundred 
dollars.    Does  this  render  the  agreement  invalid  ? 

Upon  this  point  it  must  be  admitted  that  the  adjudged  cases  are 
somewhat  conflicting.  The  recent  cases  in  New  York  hold  such 
contracts  void,  not  only  while  they  remain  executory,  but  after  they 
are  executed.  Such  is  the  doctrine  laid  down  in  Vilas  et  al.  v.  Jones 
et  al.,  1  Comst.  286.  It  seems  that  the  same  has  been  held  in 
Kentucky,  1  B.  Mon.,  to  this  extent,  that  a  promise  to  pay  usury 
was  void,  and  therefore  was  no  consideration  for  a  promise  of 
the  creditor  to  forbear,  and  that  the  surety  was  not  by  such  agree- 
ment released.  In  a  subsequent  case,  in  the  same  volume,  the  same 
court  held  that  where  the  usury  was  paid  at  the  time  the  creditor 
promised  to  forbear,  it  discharged  the  surety.  Kenningham  v.  Bed- 
ford, 1  B.  Mon.  325.  It  would  seem,  from  the  cases  above  re- 
ferred to,  that  in  Kentucky  the  law  is  settled  thus — while  the  con- 
tract is  executory,  it  is  void  and  does  not  discharge  the  surety ; 
but  when  executed  by  the  debtor,  by  payment  of  the  usury  at  the 
time  of  the  promise  to  forbear,  it  is  binding  on  the  creditor  and 
discharges  the  surety,  and  is  like  the  case  of  Austin  v.  Dorwin, 
21  Vt.  38. 

The  cases  of  Oxford  Bank  v.  Lewis,  8  Pick.  458,  and  Black- 
stone  Bank  v.  Hill,  10  Pick.  129,  can  have  no  bearing  upon  the 
question ;  for  it  does  not  appear  in  either  of  the  cases  that  there 
was  any  promise  by  the  creditor  to  forbear.  The  court  held  that 
mere  delay  to  collect  the  note  when  due  did  not  discharge  the 
surety,  and  that  the  payment  of  the  interest  in  advance,  and  be- 
yond the  time  limited  in  the  note  for  payment,  was  not  evidence 
of  an  agreement  to  forbear.  To  the  same  effect  is  the  case  of  Free- 
man's Bank  v.  Rollins,  1  Shepl.  208.  It  is  an  adoption  of  the  law, 
as  laid  down  in  the  above  cases  in  Pick.  The  court,  however,  say 
in  the  last  case  that  they  do  not  intend  to  overrule  the  case  of  Ken- 
nebeck  Bank  v.  Ruckerman,  in  which  they  say,  "there  was  a  direct 
affirmative  agreement  to  give  further  credit;"  and  in  which  case, 


464 


SURETYSHIP   DEFENSES 


I  infer,  that  they  .\ld  the  surety  was  discharged.  The  case  of 
Reynolds  v.  Ward,  5  Wend.,  is  cited  to  show  that  a  promise  to 
pay  interest  upon  the  demand  during  the  time  of  forbearance  is  no 
sufficient  consideration  for  an  agreement  to  forbear.  The  converse 
of  this,  however,  is  held  in  Bailey  v.  Adams,  10  N.  H.  162. 

In  Grafton  Bank  v.  Woodward,  5  N.  H.  99,  and  Wheat  v.  Ken- 
dall, 6  N.  H.  594,  it  is  expressly  held  that  the  payment  of  usurious 
interest  is  a  sufficient  consideration  to  sustain  a  promise  to  for- 
bear or  give  further  credit ;  and  that  an  agreement  for  forbearance 
for  a  specified  time,  founded  upon  such  consideration,  and  entered 
into  by  the  creditor  without  the  consent  of  the  surety,  is  binding 
upon  the  creditor  and  operates  as  a  discharge  of  the  surety.  The 
same  doctrine  is  held  in  Austin  v.  Dorwin,  21  Vt.  38,  and  the  New 
Hampshire  cases  are  there  cited  with  approbation. 

It  is  to  be  borne  in  mind  that  the  agreement  in  the  case  at  bar, 
so  far  as  the  interest  of  the  plaintiff  was  concerned,  was  fully  exe- 
cuted by  the  defendants  B.  &  H.  Boynton  at  the  time  the  agreement 
was  made.  The  one  dollar  was  paid  to  and  accepted  by  the  plain- 
tiff, and,  upon  the  principals  undertaking  to  pay  the  sixty-five  dol- 
lars to  Boynton  &  Burritt,  the  latter  then  discharged  the  plaintiff 
of  all  liability  by  reason  of  his  having  before  received  that  amount, 
as  usurious  interest  of  Boynton  &  Burritt.  And  although  the  sixty- 
five  dollars  was  not  indorsed  upon  the  note  which  B.  &  H.  Boyn- 
ton held  against  Boynton  &  Burritt  until  some  short  time  after  the 
agreement  was  made,  yet  we  do  not  see  that  this  circumstance  can 
affect  the  liability  of  the  plaintiff,  for  the  sixty-five  dollars  was 
made  available  to  him  by  the  discharge  of  Boynton  &  Burritt.  Nor 
do  we  see  how  B.  &  H.  Boynton  could  avoid  performing  their 
undertaking  to  Boynton  &  Burritt.  The  latter  had  a  just  and  legal 
claim  against  the  plaintiff,  which  they  were  induced  to  release  upon 
the  promise  of  payment  of  the  amount  by  B.  &  H.  Boynton.  They 
had  relied  upon  that  promise,  and  the  defendants  could  not  have 
avoided  performing  it  had  they  been  disposed. 

It  is  said  that  the  authority  of  Austin  v.  Dorwin  is  somewhat 
impaired  by  the  fact  that  the  case  of  Miller  v.  McCan,  7  Paige 
451  ;  Vilas  v.  Jones,  10  Paige  76,  which  are  supposed  in  some  mea- 
sure to  have  influenced  the  decision,  have  since  been  overruled  by 
the  Court  of  Appeals  in  New  York.  1  Comst.  274.  How  much 
influence  those  cases  had  upon  the  decision  in  Austin  v.  Dorwin 
it  is  impossible  to  say.  Those  cases,  as  also  the  case  in  Comstock 
overruling  them,  were  decided  by  able  courts,  for  whom  we  enter- 
tain the  highest  respect.  It  is  not  to  be  denied  that  the  question 
is  one  of  some  difficulty,  and  upon  which  eminent  jurists  have  dif- 
fered in  opinion.  The  case  in  Comstock  is  elaborately  discussed 
and  with  great  ability.  The  ground  upon  which  the  cases  proceed, 
that  hold  agreements  for  extending  the  time  of  payment,  founded 
on  an  usurious  consideration,  to  be  invalid  is  that  such  contracts 


A 

EXTENSION    OF   TIME  465 

are  void ;  and  stress  is  laid  upon  the  fact  that  the  statute  declares 
them  void — that  while  the  contract  remains  executory,  the  creditor 
can  not  enforce  it — and  if  it  is  executed  by  the  debtor,  by  payment 
of  the  usurious  consideration,  he  can  recover  it  back;  and  so  the 
creditor  in  no  event  can  derive  any  benefit  from  the  contract;  and 
consequently  that  he  ought  not  to  be  bound  by  it.  Such,  is  the  rea- 
soning of  the  court  in  the  case  cited  from  Comstock. 

It  is  said  that  this  provision  of  the  law,  which  enables  debtors 
who  have  paid  usurious  interest  to  recover  it  back,  is  for  the  benefit 
and  protection  of  debtors.  But  certainly  the  debtor  is  not  bound  to 
avail  himself  of  this  privilege.  He  may  waive  or  release  it.  In 
this  case,  certainly  none  but  the  defendants  can  recover  back  the 
usurious  interest  which  was  paid,  and  if  they  do  not  se.e  fit  to  avail 
themselves  of  that  privilege,  but  by  their  acts  and  conduct  place 
it  beyond  their  power  to  recall  the  payment  thus  made,  is  it  the  right 
of  the  creditor,  after  having  received  and  appropriated  to  his  use 
the  consideration  of  the  contract,  to  repudiate  it?  We  think  not. 
The  defendants  B.  &  H.  Boynton  can  not  recover  of  Boynton  & 
Burritt  the  amount  paid ;  for,  so  far  as  they  were  concerned,  the 
contract  was  not  tainted  with  usury.  If,  then,  the  defendants  can 
recover  it  at  all,  it  must  be  from  the  plaintiff.  But  do  not  the  de- 
fendants, by  causing  the  agreement  to  be  set  up  and  established  as 
a  defense  to  this  suit,  deprive  themselves  of  the  right  to  recover 
back  the  consideration  upon  which  the  agreement  was  founded? 
Under  such  circumstances,  it  seems  to  us  that  the  defendants  would 
be  estopped  from  claiming  the  usurious  interest  which  was  paid  as 
consideration  for  the  agreement  to  delay  payment  of  the  note. 
)  But,  however  that  may  be,  we  think  the  question  of  the  sufficiency 
/  of  the  consideration,  upon  which  this  agreement  rests,  was  virtually 

/  decided  in  Austin  v.  Dorwin,  and  we  are  not  disposed  to  depart 

/   from  the  doctrine  of  that  case. 

The  judgment  of  the  county  court  is   reversed   and   new  trial 

\granted. 

Accord :  Osborn  v.  Low,  40  Ohio  St  M7 ;  Fleming  v.  Barden,  126  N.  Car. 
450,  36  S.  E.  17,  53  L.  R.  A.  316,  78  Am.  St.  671 ;  Glenn  v.  Morgan,  23  W.  Va. 
467 ;  Niblack  v.  Champeny,  10  S.  Dak.  165,  72  N.  W.  402. 

Contra:  Farmers  &  Traders'  Bank  v.  Harrison,  57  Mo.  503. 


30-De  Witt. 


466 


SURETYSHIP    DEFENSEL 


MILLER  v.  STEM 
is 

2  Pa.  St.  286  (1845). 

Sergeant,  J. :  *  *  *  But  the  main  point  of  the  case  is  whether 
sufficient  was  proved  to  authorize  the  court  to  leave  it  to  the  jury 
to  say  that  the  plaintiff  made  an  agreement  to  give  time,  and  which 
had  the  effect  to  discharge  the  defendant.  The  principle  of  law, 
as  settled  by  the  recent  authorities  is,  that) if  the  creditor  make 
an  express  agreement  with  thfi  principal,  upon  sufficient  considera- 
-Jtion,  or  on  taking  a  new  security,  to  give  a  further  time  for  pay- 
ment, the  surety  is  thereby  riischarged.)j3ut^er<ft  consent  to  for 


I  v^      / 


bear,  for  a  loose  and  uncertain  period,  does  not  tie  up  the  creditors 
hands,  and  an  agreement,  without  a  sufficient  consideration,  is 
nudam  pactum;  Chitty  on  Bills,  412-414;  3  Penna.  Rep.  440.  The 
evidence  in  the  case  before  us  is  defective  in  these  essential  partic- 
ulars. Boas,  the  chief  witness,  who  speaks  to  the  point,  says  he 
does  not  remember  what  length  of  time  it  was  for;  he  expected 
the  Northampton  Bank  would  be  good  in  July ;  he  told  the  plaintiff, 
if  so,  he  could  pay  him  almost  any  time  then;  the  plaintiff  was  to 
wait  till  some  time  in  the  summer.  This  is  not  only  vague  as  to 
proving  an  express  agreement,  by  the  plaintiff  to  wait,  but  theiiime_ 
was  indefinite  and  uncertainj  To  take  away  from  the  plaintiff- a_ 
just  debt,  in  order  to  relieve  a  surety,  justice  requires  there  should) 

Ab^a,  clear,  distinct  agreement  by  the  creditor,  placed  beyond  rea- 
sonable doubt  for  a  time  certain,  or  total  forbearance,  or  forbear-^ 

Lance  for  a  reasonable  time. 

Judgment  reversed,  and  venire  facias  de  novo  awarded. 


JACOB  SMITH  v.  ESTATE  OF  ELIZUR  STEELE  J 


. 


25  Vt.  427,  60  Am,  Dec.  276  (1853). 


The  case  shows  that  there  was  sufficient  property  placed  in  the 
hands  of  the  intestate,  by  the  principal,  to  pay,  and  for  the  pur- 
pose of  paying,  the  note  in  question.    The  surety  holds  this  prop- 

2  Statement  of  case  and  part  of  opiniop  omitted. 

Accord:  Ward  v.  Wick.  17  Ohio  St.  159;  Clark  v.  Gerstley,  204  U.  S.  504, 
51  L.  ed.  589;  Thompson  v.  Rcffinsonr34  Ark.  44;  Jarvis  v.  Hyatt,  43  Ind.  163. 

For  the  effect  of  an  extension  of  time  by  the  execution  and  delivery  of  a 
note  for  the  debt,  payable  at  a  later  date,  see  §  85,  Stearns  on  Suretyship, 
2nd  ed. 


EXTENSION    OF    TIME  467 

erty  in  trust  for  the  benefit  of  the  plaintiff,  as  well  as  for  himself, 
ancTTor  its  misapplication  he  is  responsible  to  the  plaintiff. 
"T<edfield,  Ch.  J. :  The  only~~question  "made  in  the  present  case 
is  how  far  a  surety,  who  has  ample  collateral  security  from  the 
principal,  is  precluded  from  taking  advantage  of  any  enlargement 
of  the  time  of  payment,  by  arrangement  between  the  creditor  and 
the  principal,  this  property  having  subsequently,  by  consent  of  the 
principal,  gone  to  pay  other  of  his  debts. 

This  case  states  that  the  first  contract  for  the  enlargement  of 
time  was  made  in  January,  1843,  the  note  falling  due  in  April 
following,  which  was  for  one  year,  and  that  this  agreement  was 
renewed  from  time  to  time,  until  the  decease  of  defendant,  Steele, 
in  August,  1847.    *   *    *  . 

Upon  general  principles,  it  seems  to  us,  that/so  long  as  the  surety 
was  fully  secured  by  property  in  his  hands,  he  should  be  estopped 
from  objecting  to  any  enlargement  of  the  time  of  payment,  made 
by  arrangement  between  the  creditor  and  principal.  If  this  fact  is 
known  to  the  creditor,  it  would  certainly  place  his  conduct  in  a 
very  different  light  from  .what  it  is  when  no  such  indemnity  exists. 
We  can  all  see  that  in  such  a  case  there  can  probably  be  no  fraud 
in  fact.  And  in  equity  (and  in  law,  we  think  the  rule  should  be 
the  same),  there  is  no  fraud  if  such  indemnity  exists,  whether 
known  to  the  creditor  or  not.  And  this  ground  of  defense  for  the 
surety  goes  upon  the  supposed  basis  of  fraud.  1  Story  Eq.  327.  In 
such  a  case  the  surety  is  the  virtual  principal,  and  ought  to  be  bound 
by  every  enlargement  of  the  time  of  payment  quite  as  much,  per- 
haps more,  than  are  joint  principals,  by  such  a  contract  made  by 
one  of  their  number,  and  the  creditors,  of  which  there  is  no  doubt.- 

A  surety  who  is  fully  indemnified,  by  property  in  his  possession, 
which,  by  the  terms  of  the  assignment,  he  is  at  liberty  to  convert 
at  once  into  money,  as  in  the  present  case,  stands  much  in  the  , 
'same  light  as  a  surety  who  has  received  the  amount  of  the  debt 
in  money  from  his  principal.  And  in  such  case  he  is  clearly  the 
principal.  And  so,  if  he  had  received  half  the  money,  he  would 
become  a  coprincipal ;  and  in  all  these  cases,  as  it  seems  to  us,  on 
general  principles,  he  should  not  be  permitted  to  claim  the  privi- 
leges of  a  strict  surety,  without  indemnity.    *    *    * 

And  to  the  extent  of  contract  of  enlargement,  made  while  the 
surety  had  ample  indemnity  of  the  kind  shown  here,  there  can  bet 
no  doubt  he  would  be  estopped  from  setting  up  this  defense.  And  i 
as  he  had  such  security,  when  the  first  contract  of  enlargement  of 
time  of  payment  was  made,  and  nothing  appears  but  such  was  the 
fact,  at  the  subsequent  times  of  such  enlargement,  the  case  must 
be  opened  upon  this  point  alone,  and  go  back  to  ascertain  the  facts 
in  regard  to  this  subject. 

How  far  the  surety,  after  having  such  property  assigned  to  pay 


Y'  aI  AIaaa  a  a.  .    K     U 


I V 


468 


SURETYSHIP    DEFENSES 


the  debt,  or  indemnify  him  against  signing  the  note,  could  place 
himself  in  the  same  situation  he  was  before,  is  a  point  of   some, 
difficulty. 

Judgment  reversed  and  case  remanded. 

Accord:  ^Qftlton  •«.  Robbins,  4  Ala.  223,  37  Am.  Dec.  741;   Kleinhaus  v. 
Generous,  25  Ohio  SM67 ;  Turner  v.  Stewart,  51  W.  Va.  493.  41  S.  E.  924. 


J.  Y.  DEAN  v.  W.  H.  RICE  ET  AL 
63  Kans.  691,  66  Pac.  992  (1901). 

The  opinion  of  the  court  was  delivered  by 

Johnston,  J. :    In  an  action  brought  by  J.  Y.  Dean  to  recover 
on  a  promissory  note  originally  executed  by  W.  H.  Rice,  James 
Turner,  and  C.  L.  Rice,  the  defense  was  made  byJ^-Lr-^tee-ihat1  , 
he  had  signed  the  paper  as  surety,  and  had  been  released  by  an  { 
extension  of  time  granted  without  his  knowledge  or  consent.    At 
a  public  sale  of  the  property  of  Dean,  held  on  February  9,  1886,  W. 
H.  Rice  bought  some  cattle  on  credit  and  gave  a  note  for  $306,  pay- 
able nine  months  afterward,  with  interest  from  date  at  twelve  per 
cent,  per  annum,  and  James  Turner  and  C.  L.  Rice  signed  the  note 
with  him  as  sureties.    About  December  1,  1890,  the  note  being  not 
paid,  Dean  obtained  from  W.  H.  Rice  and  James  Turner  a  renewal] 
note,  payable  two  years   from  that  time,  with  interest  at  ten  per  I  . 
cent,  per  annum  from  date.    C.  L.  Rice,  who  had  been  absent  from  \ 
the  state  for  several  years,  did  not  sign  the  renewal  note  nor  con- 
sent to  the  extension  of  time  thereby  granted  to  the  other  parties,  but 
the  testimony  is  that  at  that  time  Dean  reserved  his  rights  against  C. 
L.  Rice,  the  surety.    In  this  action  to  recover  the  debt,  judgment 
was  rendered  against  W.  H.  Rice  and  James  Turner  without  con- 
sent, but  the  court  held  that  C.  L.  Rice  was  not  liable  on  the  obli- 
gation because  the  creditor,    Dean,   had   granted   the   principal   on 
the  note  an  extension  of  time  without  the  consent  of  the  surety. 

Dean  first  alleges  that  error  was  committed  in  admitting  testi- 
mony to  the  effect  that  C.  L.  Rice  had  signed  this  note  as  surety, 
when  it  had  not  been  shown  that  Dean  knew  when  he  accepted 
the  renewal  note  that  Rice  had  signed  in  that  capacity.  The  point 
is  without  merit,  one  reason  being  that  testimony  was  given  tend- 
ing to  show  that  Dean  was  asked  on  the  day  of  the  public  sale 
to  accept  Turner  and  C.  L.  Rice  as  sureties,  and  that  he  had  accepted 
them  in  that  relation.  As  a  general  rule  an  agreement  between 
the  creditor  and  the  principal  for  an  extension  of  time  to  the  prin- 
cipal in  which  to  pay  the  debt,  without  the  knowledge  or  consent 
of  the  surety,  will  operate  as  a  release  of  the  surety.  (Roberson 
v.  Blevins,  57  Kan.  50,  45  Pac.  63.)    An  important  exception  to 


• 


EXTEXSIOX    OF    TIME  469 

i  the  rule  is  that  if  the  creditor,  at  the  time  of  the  extension,  re- 
I  serves  its  remedies  against  the  surety,  the  latter  will  not  be  dis- 
/  charged  from  liability. 

/  The  principal  reason  for  the  release  of  sureties  in  such  cases  is 
that  the  postponement  of  payment  varies  the  contract  relation  and 
deprives  the  surety  of  the  right  to  pay  the  debt  when  it  becomes 
due  and  to  have  immediate  recourse  on  the  principal.  When  a 
creditor  ties  his  own  hands  and  grants  an  indulgence  which  pre- 
vents a  surety  from  obtaining  that  indemnity  against  a  principal 
which  the  law  gives  him,  the  surety  is  necessarily  prejudiced  and 
should  be  released.  If,  however,  a  creditor  explicitly  reserves  all 
remedies  against  the,  surety,,  it  rebuts  the  presumption  of  a  purpose 
to  release  the  surety,  and,  in  effect,  it  is  an  agreement  between 
creditor  and  principal  that  the  creditor  may  sue  the  surety,  who 
in  turn  may  then  proceed  against  the  principal.  If  the  surety  is 
not  deprived  of  the  protection  and  indemnity  which  the  law  affords 
him  against  a  principal  he  is  not  prejudiced  and  is  not  entitled  to 
be  released  from  the  obligation  which  he  has  undertaken.  (2  Rand. 
Com.  Pap.  §  970:  2  Dan.  Neg.  Inst.  §  1322;  Tied.  Com.  Pap.  §  424, 
p.  706;  2  Brandt  Sur.  §  376;  24  A.  &  E.  Encyl.  of  L.  830.) 

As  the  proof  in  the  case  all  shows  that  the  remedies  against  the 
surety  were  expressly  reserved  by  the  creditor,  there  was  error  in 
releasing  the  surety  from  liability. 

The  judgment  of  the  district  court  will  be  reversed  and  the  cause 
remanded  for  further  proceedings. 

Doster,  C.  J.,  Smith,  Ellis,  JJ.,  concurring. 

See  also  Morgan  v.  Smith,  70  N.  Y.  537;  Sohier  v.  Loring,  6  Cush.  (Mass.) 
537;  Boultbee  v.  Stubbs,  18  Ves.  20;  Ex  parte  Glendinning,  1  Buck  517. 

By  virtue  of  the  Negotiable  Instrument  Code  the  defense  of  extension  of 
time  is  no  longer  available  to  persons  primarily  liable  upon  such  instruments. 
Richards  v.  Market  Exchange  Bank  Co.,  81  Oliio  St.  348,  90  N.  E.  1000,  26  L. 
R.  A.  (N.  S.)  99n;  Vanderford  v.  Farmers  &c.  Bank,  105  Md.  164,  66  Atl.  47, 
10  L.  R.  A.  (N.  S.)  129n;  Wolstenholme  v.  Smith,  34  Utah  300,  97  Pac.  329. 

Otherwise  as  to  persons  secondarily  liable  upon  such  instruments  unless  the 
right  of  recourse  is  exprcsslv  reserved.  Northern  State  Bank  v.  Bellamy,  19 
N.  Dak.  509,  125  N.  W.  888,  31  L.  R.  A.  (N.  S.)  149n;  Morehead  v.  Citizens' 
Deposit  Bank,  130  Ky,  414,  113  S,  W.  501,  23  L,  R.  A.  (N,  S.)  141n. 


C/ulA 


470 


SURETYSHIP    DEFENSES 


SECTION  5.   DELAY  OF  CREDITOR  IN  ENFORCING 
CONTRACT  AGAINST  PRINCIPAL 

JOHN  D.  PIPKIN  v.  HENRY  BOND  / 


40  N.  Car.  91   (1847). 

Cause  removed  from  the  Court  of  Equity  of  Chowan  County, 
at  the  spring  term,  1847,  by  consent  of  parties. 

William  McNider  was  indebted  to  the  defendant  in  the  sum 
>1of  $932.80,  and  to  secure  it  he  gave  a  bond  and  procured  the  plain- 
tiff, Pipkin,  to  join  in  it,  as  his  surety.  After  the  bond  had  been 
some  time  due,  Pipkin,  understanding  that  McNider  was  some- 
what embarrassed,  informed  the  defendant  of  it,  and  requested 
him  to  put  the  bond  in  suit,  and  collect  the  debt.  The  defendant 
accordingly  brought  a  suit  against  McNider  and  Pipkin  in  the 
County  Court  of  Chowan,  where  McNider  lived;  and  after  the 
suit  had  been  put  at  issue  and  stood  for  trial  at  the  next  succeed- 
ing term,  the  defendant,  at  the  instance  of  McNider,  agreed  to 
dismiss  it,  and  at  the  next  term  he  did  dismiss  it  at  the  costs  of 
the  defendant  in  the  action.  About  eighteen  months  afterward 
the  defendant  brought  another  action  of  debt  on  the  bond,  and 
recovered  judgment;  and,  McNider  having  become  insolvent,  the 
present  bill  was  brought  by  Pipkin  to  restrain  the  creditor  from 
raising  the  money  from  him. 

The  bill  states  that  at  the  time  the  first  suit  was  brought  Mc- 
Nider, though  embarrassed,  had  considerable  property,  and  that, 
if  the  suit  had  been  duly  prosecuted  and  judgment  obtained  ac- 
cording to  the  course  of  the  court,  the  money  could  have  been 
raised  out  of  McNider's  property. 

It  further  states  that  the  suit  was  dismissed  (as  he,  the  plaintiff, 
afterwards  learned  from  McNider)  upon  an  agreement  between 
the  defendant  and  McNider,  for  further  indulgence  on  the  debt 
for  a  year,  or  some  other  specified  time,  in  consideration  of  the 
sum  of  $100,  paid  by  McNider  to  Bond,  or  secured  by  a  note  of  I 
McNider  to  Bond.  And  that  this  agreement  for  indulgence  and 
dismissing  the  suit  was  entered  into  by  Bond  and  McNider  without 
the  plaintiff's  consent  or  knowledge;  and  that  he  supposed,  from 
hearing  nothing  to  the  contrary,  that  the  judgment  had  been  duly 
taken,^  and  the  debt  collected  from  McNider,  and  that  he  had  no 
suspicion  that  such  was  not  the  case  until  the  writ  was  served  on 
him  in  the  second  action. 

The  bill   insists  that  the  defendant  discharged  the  plaintiff,   as 


1 


DELAY    IN    ENFORCEMENT  471 

surety,  by  entering  into  the  new  arrangement  with  the  principal 
debtor ;  and  it  prays  for  a  discovery  of  the  several  facts  stated  and 
a  perpetual  injunction.    *    *    *x 

Ruffin,  C.  J. :  The  law  affecting  this  controversy  has  been  so 
often  discussed  in  modern  times  that  it  has  come  to  be  well  under- 
stood, we  believe.  A  creditor  is  not  bound  to  a  surety  for  active 
diligence  against  the  principal;  for  it  is  the  contract  of  the  surety 
that  the  principal  shall  pay  the  debt,  and  it  is  his  business  to  see 
that  he  does.  Therefore,  forbearance  merely,  the  omission  to  sue, 
or,  after  suit,  to  take  judgment,  or  to  sue  out  execution,  although 
it  may  be  from  the  wish  not  to  distress  the  principal,  and  the  con- 
sequence of  communications  from  him,  and  although  the  creditor 
may  not  "in  form  the  surety  of  the  principal's  want  of  punctuality, 
_  will  not  discharge  the  surety.  The  reason  is,  as  was  just  men- 
tioned, that  it  is  the  duty  of  the  surety  to  himself,  and  to  the  i ;•.. 
creditor,  to  look  to  those  things  himself — the  ability  and  punctual- 
ity of  his  principal;  and,  if  there  is  reason  to  doubt  them,  it  is  his  " 
own  folly  not  to  ascertain  the  fact,  and  request  the  creditor  to 
press  for  payment,  or,  if  the  creditor  does  not  choose  (as  he  is 
not  bound)  to  incur  the  trouble  and  expense  of  suing,  then  to  pay  . 
yA  the  debt  himself,  and\  prosecute  the  claim  in  his  own  name,  or  in,  \ 
that  of  a  trustee  for  him.;  But  if  the  creditor  parts  from  a  se- 
urity~rIel'6TT>y~Tiim,  either  for  favor  to  the  principal  or  from  any 
lother  motive  of  bad  faith  to  the  surety,  or  without  the  privity  of 
.  *u/L  /the  surety,  makes  a  contract  with  the  debtor  for  forbearance,  so 
/that  he  can  not  rightfully  sue  him,  and  thus  disables  himself  to 
/  receive  payment  from  the  surety,  and  transfer  to  him  his  securi- 
/  ties  at  any  moment,  the  surety  may  require  it  from  him :  in  such 
I  cases  he  discharges  the  surety.  For,  while  the  creditor  is  not  bound 
to  diligence,  he  is  bound  not  to  increase  the  risk  of  the  surety  by  4  '■ 
any  act  of  his ;  and  if  he  does  anything  that  has  that  effect,  he  can 
no  longer  look  to  the  surety.  Nisbet  v.  Smith,  2  Bro.  C.  C.  579; 
Rees  v.  Burrington,  2  Ves.  Jr.  539;  Samuel  v.  Howarth,  3  Meriv. 
272;  Bank  of  Ireland  v.  Beresford,  6  Dow.  P.  C.  233.  To  these 
might  be  added  many  American  cases  to  the  same  purpose.  Lord 
Eldon,  in  the  cases,  lays  down  the  rule  almost  in  so  many  words  -+ 
as  it  has  been  just  stated.  And  in  Nisbet  v.  Smith,  where  the  cred- 
itor had,  at  the  request  of  the  surety,  brought  a  suit  against  the  , 
principal,  and  dismissed  it,  and  took  a  warrant  of  attorney  to  con- 
fess judgment  with  a  stay  of  execution  for  three  years,  if  the  in- 
terest should  be  paid,  Lord  Thurlow  said  that  it  was  contrary  to 
the  faith  of  the  action,  which  had  been  brought  to  give  credit  to 
the  principal  beyond  the  term  stipulated  in  the  bond ;  and  that,  as 
the  creditor  had  thought  fit  to  compromise  the  action,   under  an 

1  Part  of  statement  of  case  omitted. 


472 


SURETYSHIP    DEFENSES 


idea  that  the  surety  would  comply,  the  case  was  brought  to  the 
mere  question  whether  the  surety  should  be  obliged  to  remain  bound  i 
for  the  prolonged  term :  and  he  held  that  he  should  not.    *    *    *2  / 


V 


KINDT'S  APPEAL 


102  Pa.  441   (1883). 

This  was_an_arjped  by  Esther  Kindt  from  a  decree  of  the  Or- 
phans' Court  of  Berks  County,  dismissing  her  exceptions  to  and 
confirming  the  report  of  an  auditor  appointed  to  distribute  the 
estate  of  Christian  L.  Bechtel,  deceased. 

The  facts,  as  found  by  the  auditor  (Jeremiah  K.  Grant,  Esq.), 
were  as  follows:  On  April  6th,  1871,  Christian  L.  Bechtel,  the 
decedent,  became  a  surety  on  a  judgment  bond  for  $2,000,  jgiven 
)  by  Charles  11.  Miller  to  Aiichael  Ilaa.k,  with  a  warrant  of  attorney 
bearing  even  date  therewith  attached,  upon  which  judgment  was 
entered  on  the  same  day.  At  the  time  of  said  entry,  Charles  H. 
Miller  had  certain  real  estate  of  sufficient  value  to  pay  the  judg- 
ment. Subsequent  to  said  entry,  Charles  H.  Miller  and  Elvira 
L.,  his  wife,  conveyed  their  respective  interests  in  said  estate  to 
Christian  L.  Bechtel,  who  on  the  following  day  reconveyed  it  to 
Elvira  L.  Miller,  in  fee,  which  conveyances  were  duly  recorded. 
•  On  March  9th,  1876,  the  said  judgment  was  revived  at  the  instance 
of  Michael  Haak  by  an  amicable  sck_fa.  against  Charles  H.  Miller 
and  Christian  L.  Bechtel,  but  no  notice  was  given  to  Elvira  L. 
Miller,  the  terre-tenant;  whereby  the  judgment  lost  its  lien  and 
became  uncollectible  in  respect  to  the  estate  conveyed  as  aforesaid 
(See  Haak's  Appeal,  4  Out.  59.)  «. 

On  February  27th,  1879,  Michael  Haak  assigned  the  judgment  ' 
to  Esther  Kindt.  Bechtel  died  in  July,  1880,  and  on  the  audit  of 
1  his  estate  Esther  Kindt  presented  this  judgment  for  payment. 
Counsel  for  the  administrators  objected  to  its  allowance  on  the 
ground  that  the  failure  to  properly  revive  the  judgment  was  a  dis- 
charge of  the  surety. 

The  auditor  disallowed  the  claim,  and  the  exceptions  filed  to  his 
report  on  behalf  of  Esther  Kindt  were  dismissed  by  the  court 
(  Sassaman,  J.),  and  the  report  confirmed.  The  exceptant  there- 
upon took  this  appeal,  assigning  for  error  the  said  action  of  the 
court. 

Mr.  Justice  Green  delivered  the  opinion  of  the  court 


2  Part  of  opinion  of  the  court  omitted. 

Accord :  Welch  v.  Walsh,  177  Mass.  555,  59  N.  E.  440,  52  L.  R.  A.  782,  83 
Am.  St.  302;  Yager  v.  Kentucky  Title  Co.,  112  Ky.  932,  66  S.  W.  1027;  Crosby 
v.  Woodbury,  37  Colo.  1,  89  Pac.  34. 


DELAY    IN    ENFORCEMENT  473 


When  the  Haak's  judgment  was  revived  against  Miller  and  Bech- 
tel  in  1876,  it  was  done  by  an  amicable  writ  of  scire  facias  and 
agreement  to  which  Bechtel,  the  surety,  was  necessarily  a  party. 
He  knew,  therefore,  that  the  judgment  was  not  being  revived 
against  Mrs.  Miller,  his  sister,  terre-tenant  then  of  the  land  which 
was  bound  by  the  judgment  on  the  day  it  was  entered.  Moreover, 
he  had  himself  received  a  conveyance  of  the  land  from  Miller  and  f 
wife  on  the  same  day  the  judgment  was  entered  and  immediately 
after  reconveyed  it  to  the  wife,  who  continued  to  hold  it  thereafter. 
Bechtel  therefore  knew  perfectly  well  when  the  judgment  was  re- 
vived that  his  sister,  the  terre-tenant,  was  not  included  in  the  re- 
vival, and  that  as  to  her  the  land  was  discharged  of  the  lien  of  the 
judgment  thenceforth.  If  he  desired  that  the  lien  of  the  judgment 
/should  remain,  it  was  his  plain  duty  to  notify  the  creditor  to  that 
/  effect,  both  for  the  creditor's  protection  and  his  own.  He  did  not 
/  see  proper  to  do  so.  Haak,  the  judgment  creditor,  might  well  be 
/  satisfied  to  revive  his  judgment  in  the  same  manner  as  it  was  orig- 
in inally  taken.  If  he  was  content  with  the  liability  of  Charles  H. 
^  Miller  and  Bechtel  he  was  perfectly  at  liberty  to  rest  upon  that, 
and  might  wait  as  long  as  he  chose  without  putting  in  peril  his 
right  to  collect  the  money  from  Bechtel.  Mere  sBpineness  would 
not  prejudice  his  right  to  resort  to  the  surety,  unless  the  Tatter  no- 
tified him  to  proceed,  of  which  there  is  no  pretense.  It  would  be 
strange  indeed  if,  in  such  circumstances,  an  omission  to  revive 
against  a  subsequent  alienee  of  the  land  should  deprive  the  creditor 
of  his  right  of  recovery  against  the  surety.  It  has  been  repeatedly 
held  that  even  when  the  judgment  creditor  failed  entirely  to  revive? 
his  judgment  against  the  debtor  and  thereby  lost  its  lien  altogether 
against  the  land  of  the  debtor,  such  omission  was  no  defense  to 
the  surety.  Thus  in  United  States  v.  Simpson,  3  Penna.  437,  it 
was  held  that  where  the  judgment  creditor  suffered  the  lien  of  the' 
judgment  to  expTre7~\vithout  revivai7"tlTe~surety  was  not  discharged^, 
Gibson,  C.  J.,  said,  "the  rule  is  well  settled  that  mere  forbearance, 
towever  prejudicial  to  the  surety,  will  not_discharge  rTrfrE  fOs  his 
/peculiar  business  to  judge  of  the  danger  to  be  apprehended  from 
'delay,  and  to  quicken  the  creditor,  where  the  occasion  requires  it, 
in  the  way  known  to  the  law ;  in  default  of  which  the  loss  incurred 
is  necessarily  to  be  attributed  to  his  own  supineness."  In  Mundorff 
v.  Singer,  5  W.  172,  it  was  held  that  if  an  obligee  in  a  bond  obtain 
a  judgment  against  the  principal  and  suffer  it  to  remain  without 
revival  until  the  lien  on  his  lands  be  lost,  and  afterwards  sue  the 
surety  on  the  same  bond,  the  latter  can  not  avail  himself  of  the 
negligence  of  the  plaintiff  as  a  defense.  This  principle  has  been 
followed  in  many  cases,  among  which  the  latest  is  that  of  Winton 
v.  Little,  13  Norr.  64,  in  which  Mr.  Justice  Trunkey,  on  p.  73, 
says,  "Mere  forbearance,  however  prejudieial  to  the  surety,  will 
not  discharge  him.    This  rule  applies   where  a   creditor   suffers   a 


££*± 


474 


SURETYSHIP   DEFENSES 


judgment  to  lose  its  Hen  for  want  of  revival  against  the  principal 
debtor,  and  thereby  subsequent  creditors  are  enabled  to  take  the 
land."  The  foregoing  authorities  and  the  principle  which  they  de- 
clare and  enforce  were  entirely  overlooked  by  the  auditor  and  court 
below  and  hence  there  was  error  in  the  conclusion  at  which  they 
arrived.  There  was  nothing  but  delay  on  the  part  of  the  judgment 
creditor.  He  made  no  contract  by  which  he  disabled  himself  from 
proceeding  at  any  time.  He  revived  his  judgment  against  both 
the  original  defendants,  and  merely'  failed  to  revive  it  against  the 
terre-tenant,  who  was  a  stranger  to  the  original  judgment.  The 
surety  gave  no  notice  to  the  creditor  to  proceed,  and  it  would  be 
contrary  to  the  well  established  law  to  hold  that  in  such  circum- 
stances he  was  released  from  his  liability.  His  obligation  was  kept 
ontinuously  alive  and,  of  course,  his  estate  must  discharge  it. 
The  decree  of  the  court  below  is  reversed.   *   *   *~~ 


& 


JAMES  M.  DYE  v.  W.  H.  H.  DYE^. 
21  Ohio  St.  8^8  Am.  Rep.  40  (1871). 


The  judgment  sought  to  be  reversed  by  this  proceeding  was 
rendered  in  an  action  brought  in  the  court  of  common  pleas  of 
Miami  county  by  W.  H.  H.  Dye  (the  defendant  in  error),  against 
James  M.  Dye  (the  plaintiff  in  error),  Thomas  C.  Dye,  and  Ros- 


well  S.  Dye,  on  a  joint  and  several  promissory  note  for  ten  thou 
sand  dollars,  dated  December  12,  1864,  and  payable  to  W.  H.  H. 
Dye,  in  twelve  months  after  date. 

The  material  question  in  the  case  arose  on  the  demurrer  of  the 
plaintiff  below  to  the  separate  answer  of  James  M.  Dye  to  the 
petition.  He  alleges  in  his  answer,  as  a  defense  to  the  action  against 
him,  that  the  note  executed  by  him  and  the  other  defendants  to 
YY.  H.  <l.  Dye,  on  which  the  action  is  brought,  was  signed  by  him 
as  surety  only  for  Thomas  C.  and  Roswell  S.  Dye,  which  fact  was 
known  to  W.  H.  H.  Dye,  the  payee  of  the  note  and  plaintiff  in 
the  action ;  that,  before  the  maturity  of  the  note,  Roswell  S.,  one 
of  the  principals  of  the  note,  became  insolvent;  that  on  June  21, 
1865,  Thomas  C.  Dye,  the  other  principal,  failed,  and  made  an 
assignment  of  all  his  property,  for  the  benefit  of  his  creditors,  to 
O.  Bowen  and  Roswell  S.  Dye,  in  the  probate  court  of  Marion 
county,  according  to  law ;  that  said  assignee  duly  qualified ;  that 
they  gave  notice,  as  required  by  law,  to  the  creditors  of  Thomas 
C.  Dye  (of  whom  W.  H.  H.  Dye  was  one),  to  present  their  claims 
for  allowance  and  payment;  that  the  assignees  realized  out  of  the 
assets  of  Thomas  C.  Dye,  after  paying  all  special  liens  thereon, 
the  sum  of  $167,323.04;  that,  after  three  partial  settlements  of  said 


J 


. 


DELAY    IN    ENFORCEMENT  475 

assignment,  a  final  settlement  was  made  by  the  assignees,  December 
.23,  1868,  by  which  all  claims  against  said  Thomas  C.  presented 
to  the  assignees  properly  authenticated  were  paid  in  full ;  and  that 
W.  H.  H.  Dye,  the  plaintiff  below,  wholly  neglected  and  refused 
to  present  his  claim  to  the  assignees,  by  reason  of  which  the  same 
was  not  paid.  He  insists  that,  therefore,  he  is  discharged  from  his 
liability  as  surety  thereon. 

The  common  pleas  sustained  the  demurrer  to  the  answer  and 
rendered  judgment  in  favor  of  the  plaintiff  below  for  amount  due 
on  the  note.  Thereupon  James  M.  Dye  took  the  case  to  the  dis- 
trict court,  on  error,  where  the  judgment  of  the  common  pleas  was 
affirmed. 

To  reverse  these  judgments,  he  now  asks  leave  to  file  his  petition 
in  error  in  this  court,  on  the  ground  that  the  courts  below  erred 
in  sustaining  the  demurrer  to  the  answer,  thereby  holding  that  the 
defense  interposed  by  him  was  not  sufficient  in  law  to  bar  the  ac- 
tion against  him. 

Day,  J. :  The  error  alleged  originated  in  the  court  of  common 
pleas.  The  action  in  that  court  was  on  a  promissory  note.  One 
of  the  defendants,  who  was  surety  on  the  note,  interposed  a  de- 
fense, which  raises  the  material  question  to  be  considered :  [will,  f, 
the  mere  neglect  of  the  holder  of  a  note  to  present  it  to  the  as-  \~ 
signee  of  the  principal  discharge  the  surety  to  the  extent  that  might 
have  been  thereby  realized  on  it  out  of  the  assets  of  the  principal? 

No~case~upon  this  precise  point  has  been  brought  to  our  atten- 
tion; we  are,  therefore,  left  to  determine  it  upon  the  principles 
that  run  through  the  cases  on  analogous  questions. 

The  case  before  us  is  not  embarrassed  by  considerations  that 
arise  in  cases  where  the  principal  debtor  is  discharged  by  the  neg- 
ligence of  the  creditor,  for  the  statute  of  this  state  in  relation  to 
assignments  leaves  the  liability  of  the  principal  makers  of  the  note 
unaffected  by  the  neglect  to  present  it  for  allowance  and  payment 
out  of  the  assets  in  the  hands  of  the  assignees. 

A  creditor  may,  however,  in  many  ways  do  that  which,  though 
it  may  not  affect  the  liability  of  the  principal,  will  exonerate  sure- 
ties.   In  all  such  cases  the  discharge  of  the  surety  is  based  upon 
some  recognized  and  well-defined  principle,  and,  in  general,  results 
from  a  positive  act  of  the  creditor  which  operates  to  the  prejudice 
of  the  surety.  jPassiveness  on  the  part  of  the  creditor  will  not  dis- 
jcharge  the   surety,   unless   he   omits  to   do,   when   required  by  the' 
surety,  what  the  law  or  his  duty  enjoins  him  to  do,  or  unless  he  ^~ 
neglects,  to  the  injury  of  the  surety,  to  discharge  his  duty  in  any  | 
manner  in   which   he   occupies   the   position   of   a   trustee,  for   the 
surety.    The  Farmers'  Bank  of  Canton  v.  Raynolds,  13^t)hio  84  ; 
Shroeppel  v.  Shaw,  3  Comst.  446;   1   Story  Eq.,  §  325;  and  note 
to  Rees  v.  Barrington,  3  Leading  Cases  in  Equity  529,  for  a  full 
reference  to  the  authorities  on  the  subject. 


I 


476 


SURETYSHIP   DEFENSES 


The  discharge  of  the  surety  is  not  claimed,  in  this  case,  by  reason 
of  any  positive  act  of  the  creditor,  nor  by  reason  of  his  neglect 
to  prosecute  the  claim,  after  being  required  by  the  surety  to  do 
so  by  notice  in  writing,  in  accordance  with  the  statute,  nor,  indeed, 
by  reason  of  his  neglect  to  comply  with  any  requirement  of  the 
surety  whatever,  for,  from  aught  that  appears,  the  passiveness  of 
the  surety  equaled  that  of  the  creditor.  Nor  did  the  creditor  have 
anything  in  his  hands,  actually  or  constructively,  in  the  nature  of  a 
trust.  Then.lupon_the  principles  so  broadly  stated,  it  would  seem 
that  the  surety  was  not  exonerated  from  liability  on  the  nofeT~ 

But  it  is  claimed  that  it  was  the  duty  of  the  creditor  to  present 
the  note  to  the  assignees,  and  thus  save  the  surety  harmless  from 
debt,  and  that  his  neglect  to  do  so  was,  consequently,  a  fraud  on 
the  surety.  This  claim  of  fraud,  it  will  be  seen,  rests  on  the  sup- 
position that  it  was  a  duty  the  creditor  owed  to  the  surety,  to  pre- 
sent the  note  to  the  assignees  in  order  to  protect  him  from  liability. 
What  might  have  been  his  duty,  if  the  surety  had  required  him 
to  present  the  note,  we  are  not  called  upon  to  decide.  But  so  long 
as  the  surety  is  willing  to  remain  passive,  why  may  not  the  cred- 


■ 


itor?   He  may  be  entirely  willing  to  continue  to  rest  upon  the  credit 
he  had  originally  given  to  the  surety,  rather  than  take  upon  him- 


self  the  trouble  and  expense  of  claiming  a  dividend  out  of  the  assets 
of  the  principal ;  for  he  may  look  to  the  surety  as  well  as  the  prin- 
cipal for  the  payment  of  the  debt.  He  gave  credit  to  both  equally, 
while  the  surety  trusted  the  principal  alone  for  his  indemnity.  So 
far  as  the  interest  of  the  creditor  was  concerned,  it  was  a  matter 
of  indifference  to  him  which  of.  the  makers  of  the  note  paid  it ; 
but  it  was  directly  for  the  interest  of  the  surety  that  the  note  should 
be  paid  out  of  the  assets  of  the  principal.  It  would,  therefore, 
seem  most  reasonable  that  he  should  be  the  primary  party  to  move 
for  the  accomplishment  of  that  object,  for  he  who  enjoys  the  bene- 
fit ought  to  sustain  the  burden.  At  least  he  might  have  requested 
the  creditorttfjpresent  the  note  to  the  assignees,  jmch_i£_he  refused 
to  do  so,  I  lee  no  reason  why  he  might  not  have  done  it  himself, 
nor  why.  if  the  assignees  had  refused  to  allow  it.  he  migHt  not 
have  enforced  it  by  action,  for  the  statute  gives  to  the  surety  sub- 
stantially every  remedy  that  the  creditor  has,  to  enforce  payment 
of  a  claim  by  the  principal.  The  note  became  due  within  the  time 
mentioned  in  the  statute  for  the  presentation  of  claims,  and  was 
overdue  more  than  two  months  before  the  assignees  were  author- 
ized by  law  to  make  a  dividend,  and  more  than  two  years  before 
their  final  settlement.  The  surety  was  not  at  any  time  debarred 
from  any  of  his  legal  remedies  against  the  principal,  or  his  assets 
in  the  hands  of  the  assignees ;  and  if,  by  possibility,  they  were 
not  as  ample  as  those  of  the  creditor,  he  might  at  least  have  made 
them  equally  so,  by  discharging  his  own  obligation  to  the  creditor 
by  payment  of  the  note  when  it  became  due.    At  best,  then,   the 


DELAY    IN    ENFORCEMENT  477 

surety  was  not  less  in  default  than  the  creditor,  and,  therefore,  can 
claim  no  equitable  right  against  him.  Indeed,  if  the  surety  had 
discharged  his  duty,  by  payment  of  the  note  when  it  became  due, 
the  creditor  would  have  had  no  claim  to  present  to  the  assignees 
of  the  principal ;  the  surety's  own  default  to  the  creditor,  there- 
fore, in  fact  becomes  the  ground  of  his  claim  against  him.  Since, 
then,  the  breach  of  duty  charged  against  the  creditor  can  not  be 
sustained  without  giving  the  surety  the  advantage  of  his  own  de- 
fault, I  know  of  no  principle  on  which  his  claim  can  be  tolerated. 

The  case  of  McCullum  v.  Williams'  Exs.,  9  Vt.  143,  is  much 
relied  on  by  the  plaintiff  in  error.  In  that  case  the  note  was  barred 
as  against  the  estate  of  the  principal  by  reason  of  the  creditor's  fail- 
ure to  present  it  to  the  administrator  within  the  time  limited  by 
the  law,  and  the  creditor  sought  to  charge  the  estate  in  equity 
through  its  liability  to  the  surety  on  the  note.  Relief  was  refused 
in  part,  on  the  ground  that  good  faith  required  the  creditor  to 
present  his  note  to  the  administrator,  and  that,  therefore,  the  neg- 
ligence of  the  creditor,  which  discharged  the  principal,  also  dis- 
charged the  surety.  But  that  case  is  distinguishable  from  this,  in 
that  here  the  principal  was  not  discharged,  nor  does  it  appear,  as 
it  did  in  that  case,  that  the  surety  was  out  of  the  country  and  had 
no  notice  of  the  decease  of  the  principal. 

But  so  far  as  the  ruling  in  that  case  has  any  application  to  this, 
the  weight  of  the  authority  is  against  it.  In  Johnson  v.  The  Plant- 
ers' Bank,  4  Smedes  &  Marshall  165,  it  was  held  that  the  surety 
on  a  note  was  not  discharged,  although  it  was  barred  as  against 
the  estate  of  the  principal,  by  reason  of  the  omission  of  the  holder 
of  the  note  to  present  it  to  the  administrator  within  the  time  lim- 
ited. In  that  case,  after  stating  the  general  rule,  "that  the  obligation 
of  the  surety  becomes  extinct  by  the  extinction  of  the  obligation 
of  the  principal  debtor,"  the  court  say:  "An  exception  of  this 
rule  takes  place  whenever  the  extinction  of  the  obligation  of  the 
principal  arises  from  causes  which  originate  in  the  law,  and  not 
in  the  voluntary  act  of  the  creditor,  as  in  bankruptcy.  Theo.  on 
Principal  and  Surety,  67;  Brown  v.  Carr,  7  Bing.  508.  The  cred- 
itor, in  order  to  preserve  his  rights  against  the  surety,  is  not  bound 
to~~actiye  dTlTgence,  and,  if  he  merely  remains  passive,  his  rights 
are  not  impaired."  (Theobold,  p.  80.)  *  *  *  "The  creditor  would 
not  often  give  the  credit  without  security;  he  takes  it  for  his  own 
indemnity.  .The  surety  knows  his  own  risk.  If  he  desires  to  lessen/ 
that  risk  he  may  file  a  bill  to  compel  the  bringing  of  the  suit,  or, 
by  payment,  he  may  have  an  assignment  of. the  instrument.  But 
while  both  remain  passive  the  operation  of  the  law  will  not  dis- 
charge the  surety."    *    *    * 

"The  sureties  may,  in  such  cases,  compel  the  presentment  of  the 
claim  in  due  time,  and  thus  preserve  their  recourse  against  the  es- 
tate beyond  doubt.     If  they  fail  to  do  so  they  are  in  fault  in  neg- 


478 


SURETYSHIP    DEFENSES 


lecting  to  protect  their  interest,  and  have  no  right  to  throw  the  con- 
sequences of  their  negligence  upon  the  creditor." 

To  the  same  effect  is  the  holding  in  Nashville  Bank  v.  Campbell, 

7  Yerger  353;  Hooks  &  Wright  v.  Branch  Bank  of  Mobile,  3  Ala. 
580 ;  Vanderburgh  v.  Snyder,  6  Iowa  39 ;  and  Silbey  v.  McAllaster, 

8  N.  H.  389. 
In  the  last  case  cited,  the  chief  justice,  in  delivering  the  opinion 

of  the  court,  said :  "It  is  well  settled  thatja  discharge  of  the  prin- 
cipal, under  a  bankrupt  law,  does  not  discharge  the  surety.  6  Mass. 
33;  4  M.  &  S.  334;  2  M.  &  S.  39;  4  J.  B.  Moore  153." 

"And  a  creditor  is  under  no  obligation  to  prove  his  debt  under 
a  commission  of  bankruptcy  of  the  principal,  unless  the  surety  gives 
to  the  creditor  an  indemnity  for  the  expense.  4  John  C.  R.  132; 
10  Vesey  414;  6  Vesey  734;  2  John.  C.  R.  562." 

"The  surety  is  the  person  who  trusts  the  principal,  and  it  is  his 
business  to  see  that  the  principal  pays.  *  *  *  SucrT  Derng^the 
s  general  rules  of  law.  it  is  very  apparent  that  if  the  principal  die, 
and  his  estate  be  administered  in  the  insolventicourse,  the  creditor 
is  under  no  obligation  to  present  his  claim  to  the  commissioners, 
and  procure  what  he  may  from  that  estate.  He  has  a  right  in  such 
case  to  look  to  the  surety  for  the  whole  amount." 

"It  is  the  business  of  the  surety  to  procure  the  creditor  to  lay  his 
claim  before  the  commissioners,  or  to  pay  the  claim,  and  then  lay 
his  own  claim  before  the  commissioners  for  the  money  he  may  have 
paid  to  the  creditor." 

If  thenjthe  mere  omission  of  the  creditor  to  present  his  claim  to 

(the  assignee  of  the  principal  in  bankruptcy,  or  to  his  administrator, 
where  in  either  case  the  liability  of  the  principal  is  discharged,  will 
not  exonerate  the  surety,  much  less  will  such  neglect  exonerate  him 
in  a  case  like  the  one  before  us,  where  the  principal  remains  liable. 
The  doctrine  of  the  cases  referred  to  is  in  harmony  with  that 
before  stated  in  relation  to  the  liabilities  of  sureties,  and,  on  prin- 
ciple, would  seem  to  be  decisive  of  this  case. 

In  McLemore  v.  Powell  (12  Whea.  555)  Judge  Story  says:  "It 
was  correctly  said  by  Lord  Elden,  in  English  v.  Darley  (2  B.  &  P. 
61),  that  as  long  as  the  holder  is  passive  all  his  remedies  remain; 
and,  we  may  add,  that  he  is  not  bound  to  active  diligence." 

This  doctrine,  as  applied  to  sureties,  has  been  carried  in  this  state 
to  the  extent  of  holding  that  the  loss  of  a  judgment  lien  on  the  prop- 
erty of  the  principal,  by  reason  of  the  omission  of  the  creditor  to 
enforce  it,  it  will  not  release  the  surety.  (Farmers'  Bank  of  Can- 
ton v.  Reynolds,  13jQhio  84.) 

We  are  not  required  to  go  to  that  extent,  to  hold  that  the  mere 
omission  of  a  holder  of  a  note  to  present  it  to  the  assignee  of  the 
principal,  will  not  exonerate  the  surety  from  liability  thereon. 

We  are  so  well  convinced  that  the  rulings  of  the  courts  below 


DELAY    IN    ENFORCEMENT  479 

were  correct  that  we  are  constrained  to  overrule  the  motion   for 
leave  to  file  a  petition  in  error. 

Scott,  C.  J.,  and  Welch,  White  and  Mcllvaine,  JJ.,  concurred. 


WILLIAM  VILLARS  v.  LEVIN  T.  PALMER,  ADMR,  ET  AL. 


67  III.  204  (1873). 

This  was  a  bill  in  chancery  by  William  Villars  against  Levin  T. 
Palmer,  administrator  of  the  estate  of  Guy  Merrill,  deceased,  and 
John  G.  Leverich,  to  enjoin  proceedings  at  law  by  Palmer  as  ad- 
ministrator of  the  estate  of  Merrill,  for  the  use  of  Leverich,  upon  a 
promissory  note,  given  In  one  ( leorge  \Y.  Taylor,  as  principal,  and 
signed  by  the  complainant  as  surety,  and  payable  to  said  Guy  Mer- 
riJLas  master  in  chancery.  The  bill  showed  that  the  estate  of  Tay- 
lor was  solvent,  and  that  the  debt  could  have  been  made  if  the  claim 
had  been_presented  before  it  was  barred  by  the  two  years'  limita- 
tion. The  court  below  dismissed  the  bill,  and  the  complainant  ap- 
pealed. 

Mr.  Justice  Sheldon  delivered  the  opinion  of  the  court : 

The  claim  on  the  part  of  the  surety  in  this  case  is,  that,  as  by  the 
neglect  of  the  creditor  to  present  his  claim  against  the  estate  of 
Taylor,  the  principal,  all  remedy  in  respect  to  the  debt  has  been  lost 
against  the  estate  of  the  principal,  that  should  operate  to  discharge 
the  surety. 

The  complaint  is  of  mere  delay,  not  of  any  affirmative  act  on  the 
part  of  the  creditor,  whereby  the  surety  has  been  affected.  But  it 
is  the  well  established  principle,  that  mere  delay  on  the  part  of  the 
creditor  to  proceed  against  the  principal  does  not  discharge  the  re- 
sponsibility of  the  surety. 

In  cases  of  this  sort,  there  is  not  any  duty  of  active  diligence 
incumbent  on  the  creditor.  All  that  the  surety  has  the  right  to  re- 
quire of  the  credit'or,  in  the  absence  of  any  statute  provision,  is, 
that  no  affirmative  act  shall  be  done  that  will  operate  to  his  preju- 
dice.   It  is  his  business  to  see  that  the  principal  pays. 

The  law  furnished  the  surety  here  with  ample  remedies  for  his 
protection.  PTp_nn'gbt  hnvp  paid  the  Hpht  according  to  his  under- 
taking, and  have  sued  the  principal  himself ;  or  he  might  have  gone 
into  a  court  of  equity  after  the  debt  became  due,  and.  obtained  a 
decree  that  the  principal  should  pay  it ;  or  he  might,  under  the  stat- 
ute, Jiay_e_giv-erL to  the  creditor  written  notice  to  put  the  note  in 
uit,  and  thus  have  compelled  him  to  sue  the  principal. 

If  he  has  seen  fit  to  lie  by,  and  the  neglect  to  proceed  against 
the  principal  in  his  lifetime,  or  against  his  estate  after  his  decease, 


480 


SURETYSHIP    DEFENSES 


lias  been  the  means  of  depriving  the  surety  of  his  indemnity,  he 
must  abide  by  the  loss,  and  can  not  throw  it  upon  the  creditor. 

Without  more,  we  need  but  to  refer  to  the  cases  of  The  People 
v.  White  et  al.,  11  111.  342,  and  Taylor  v.  Beck,  13  id.  376,  where 
the  subject  is  fully  considered  and  the  authorities  cited.  In  the 
former  case,  the  very  point  made  by  the  surety  here  is  decided  ad- 
versely to  him. 

Under  the  statute  of  March  4,  1869,  Sess.  Laws  1869,  p.  305^ 
where  the  principal  maker  of  a  joint  note  has  departed  this  life,  it 
is  made  the  duty  of  the  holder  of  the  note  to  present  the  same 
against  the  estate  of  the  decedent  for  allowance,  to  the  proper 
court,  within  two  years  after  the  granting  of  the  letters  of  admin- 
istration.   But  that  statute  is  too  late  to  affect  the  present  case.      / 

The  decree  of  the  court  below  dismissing  the  bill  is  affirmed.  ' 

Decree  affirmed. 

Accord:  Bull  v.  Coe,  77  Cal.  54,  18  Pac.  808,  11  Am.  St.  235;  Banks  v.  Ran- 
stead,  62  Md.  88 ;  Moore  v.  Gray,  26  Ohio  St.  525 ;  Johnson  v.  Planters'  Bank, 
12  Miss.  165;  Yerxa  v.  Ruthruff,  VTN.  Dak.  13,  120  N.  W.  758,  25  L.  R.  A. 
(N.  S.)   139n,  Ann.  Cas.  1912D,  809n. 

Contra :  Auchampaugh  v.  Schmidt,  70  Iowa  642,  27  N.  W.  805,  59  Am.  Rep. 
459. 


SECTION  6.  FAILURE  OF  CREDITOR  TO  APPLY 
COLLATERAL 


RILEY  A 


BRICK 


THE  FREEHOLD  NATIONAL  BANK- 
ING COMPANY  i/ 


37  N.  J.L.  307  (1875). 

Dalrimple,  J.,  delivered  the  opinion  of  the  court. 

The  defendant  in  this  case  is  sued  as  indorser  of  a  promissory 
note.  The  defense  is,  that  the  plaintiffs,  the  holders  of  the  note, 
received  from  the  maker  a  conveyance  of  certain  property  as  collat- 
eral security  for  the  payment  of  the  note,  and  that  because  of  their 
failure  to  sell  the  collaterals  and  appropriate  the  proceeds  of  the 
sale  to  the  liquidation  of  the  debt,  coupled  with  the  fact  that  the 
property  held  as  collateral,  had  somewhat  depreciated  in  value,  be- 
tween the  time  of  the  maturity  of  the  note  and  the  commencement 
of  the  suit,  the  right  of  action  as  against  the  defendant,  who  is 
an  accommodation  indorser,  is  lost.  This  proposition  can  not  be 
maintained.  It  is  well  settled  that  mere  delay  by  the  creditor  to 
sue  the  principal  debtor  will  not  discharge  the  surety,  for  the  ob- 
vious reason  that  the  surety  may  at  any  time  discharge  his  obliga- 
tion to  the  creditor,  and  thus  make  the  principal  his  debtor;    The 


w 


FAILURE  TO  APPLY  COLLATERAL  481 

/same  rule  holds  when  collaterals  are  pledged  by  the  principal 
dehtor.  The  surety  may  at  any  time  after  the  debt  becomes  due 
and  owing,  discharge  it  and  take  the  collaterals.  The  law  implies 
no  contract  on  the  part  of  the  creditor  to  proceed  on  the  collaterals 
before  he  can  sue  the  surety.  Nor  are  the  rights  of  the  parties 
affected  by  the  fact  that  the  collaterals  have  depreciated  between 
the  time  of  the  maturity  of  the  debt,  for  payment  of  which  they 
were  pledged,  and  the  commencement  of  the  suit  against  the  surety. 
These  principals  are  recognized  as  sound  law  by  the  Court  of  Ap-  ■' 
peals  of  New  York,  in  the  well-considered  case  of  Schroeppell  v. 
Shaw,  reported  in  3  Comstock  446.  The  same  case  will  be  found 
reported  in  5  Barb.  580. 

But  whatever  may  be  the  correct  general  rule  on  the  subject,  it 
is  not  shown  in  this  case  that  the  plaintiff's  have  been  guilty  of 
any  neglect  to  the  prejudice  of  the  defendant.     For  aught  that  ap- 
pears, the  collaterals  were,  at  the  commencement  of  the  suit,  in  as 
good  condition,  natural  wear  and  tear  excepted,  as  they  were  when  . 
the  causes  of  action  accrued.     Besides  it  is  fairly  inferable   from  ■■ 
the  evidence  that  the  plaintiffs,  after  the  note  became  due  and  be-   ' 
fore  bringing  suit  thereon,  made  a  reasonable  effort  to  sell  the  col- 
laterals. 

Another  and  complete  answer  to  the  defense  is,  that  by  written , 
stipulation  the  pl^intiffg  Iwptp  bniind,  1'n  rat;p  defendant  was  obliged  ) 
to  pay  the  note,  to  transfer  the  collaterals  to  him.    Jn  order  to  fulfil/ 
this  stipulation,  it  was  necessary  for  plaintiffs  to  retain  the  collat-  ' 
eraTs.J.Lthey  could  hot  be  sold  for  a  sufficient  sum  to  pay  the  note 
in  full,  otherwise  their  right  of  action  against  the  defendant  would) 
havcTbeen  gone. 

Ttis  hardly  necessary  to  add  that  the  defendant's  offer  to  pay 
the  note  prior  to  its  maturity,  on  condition  that  the  collaterals 
should  be  at  once  assigned  to  him,  wTas  of  no  effect,  especially  in 
view  of  the  fact  that  the  plaintiffs  were  under  written  stipulation, 
executed  and  delivered  simultaneously  with  that  given  to  the  de- 
fendant, to  convey  the  collaterals  to  the  wife  of  one  of  the  makers 
of  the  note,  on  payment  of  the  note  by  him. 

In  the  submission  of  the  case  by  the  court  to  the  jury,  no  legal 
principle  was  violated.  Substantial  justice  has  been  attained,  and 
the  rule  to  show  cause  should  be  discharged  with  costs. 

The  chief  justice,  and  Justices  Depue  and  Scudder  concurred. 

See  also  Cherry  v.  Miller,  75  Tenn.  305. 


31 — De  Witt. 


Out* 

482 


SURETYSHIP    DEFENSES 


yw. 


SECTION  7.    FAILURE  OF  CREDITOR  TO  SUE  AFTER 
. ,.   NOTICE  BY  SURETY 


PAIN 

13 


PACKARD. 


Johns.  (N.  Y.)  174,  7  Am.  Dec.  369  (1816). 

/  This  was  an  action  of  assumpsit  on  a  promissory  note  made  by 
Packard  &  Munsion,  in  which  Packard  alone  was  arrested,  the  other 
defendant  being  returned  not  found.  The  defendant,  Packard, 
pleaded:  (1)  Nonassumpsit.  (2)  That  he  signed  the  note,  which 
was  for  $100,  payable  on  demand,  as  surety  for  Munsion ;  that  he 
urged  the  plaintiff  to  proceed  immediately  in  collecting  the  money 
due  on  the  note  from  Munsion,  who  was  then  solvent;  andlhat,  if 
the  plaintiff  had  then~p~foceeded  immediately  to  take  measures  to 
collect  the  money  from  Munsion,  he  might  have  obtained  payment 
from  him,  but  the  plaintiff  neglected  to  proceed  against  Munsion, 
until  he  became  insolvent,  absconded,  and  went  away  out  of  the 
state,  whereby  the  plaintiff  was  unable  to  collect  the  money  of  Mun- 
sion. (3)  The  third  plea  was  like  the  second,  except  that  the  de- 
fendant alleged  a  promise,  on  the  part  of  the  plaintiff,  that  he  would 
immediately  proceed  to  collect  the  money  of  Munsion,  and  a  breach 
of  that  promise,  by  which  the  defendant  was  deceived  and  de- 
frauded, and  prevented  from  obtaining  the  money  from  Munsion, 
etc. 

There  was  a  demurrer  to  the  second  and  third  pleas,  and  a  join- 
der in  demurrer,  which  was  submitted  in  the  court  without  argu- 
ment. 

Per  curiam.  The  facts  set  forth  in  the  plea  are  admitted  by 
the  demurrer.  The  principles  laid  down  in  the  case  of  The  People 
v.  Tansen  (7  Johns.  336)  will  warrant  and  support  this  plea.  We 
there  say.ja  mere  delay  in  calling  on  the  principal  will  not  discharge 
i  the  surety^  The  same  principle  was  fully  and  explicitly  laid  down 
by  the"  court,  in  the  case  of  Tallmadge  v.  Brush.  But  this  is  not 
such  a  case.  Here  is  a  special  request  by  the  surety,  to  proceed  to 
collect  the  money  from  the  principal,  and  an  averment  of  a  loss  of 
the  money,  as  against  the  principal,  in  consequence  of  such  neglect. 
The  averments  and  facts  stated  in  the  plea  are  not  repugnant,  or 
contradictory  to  the  terms  of  the  note.  The  suit  here  is  by  the 
payee  against  the  makers.  The  fact  of  Packard  having  been  se- 
curity only,  is  fairly  to  be  presumed  to  have  been  known  to  the 
plaintiff.  He  was,  in  law  and  equity,  therefore,  bound  to  use  due 
diligence  against  the  principal,  in  order  to  exonerate  the  surety. 
This   he   has  not   done.      There   can   be   no   substantial   objections 

against  such  a  plea.    It  may  be  said,  the  surety  might  hav£-paid-4ke 

note,   and  prosecuted  the  principal';  but  although   he   might  have 


FAILURE    TO    SUE    AFTER    NOTICE 


•^La^-Xg-^^ 


48: 


done  so,  he  was  not  bound  to  do  it.  If  he  had  a  right  to  expedjte 
the  plaintiff  in  proceeding-  against  the  principal,  and  chose  to— rest 
on  that,  he  might  do  so.  In  the  case  of  the  Trent  Nav.  Co.  v.  liar- 
ley  (10  East  34),  the  plea  was  similar  to  the  present,  and  not  de- 
murred to.  The  defendant  must,  accordingly,  have  judgment  upon 
the  demurrer. 

Judgment  for  the  defendant. 

Accord:  Martin  v.  Skehan,  2  Colo.  614;  Hempstead  v.  Watkins,  6  Ark.  317, 
42  Am.  Dec.  696;  Thompson  v.  Watson,  10  Yerg.  (Tenn.)  3b2. 

Contra:  Bellows  v.  Lovell,  22  Mass.  307;  Dane  v.  Corduan,  24  Cal.  157,  85 
Am.  Dec.  53;  Bull  v.  Allen,  19  Conn.  101. 


EDWARD  NEWCOMB,  RECEIVER,  ETC.,  APPELLANT,  v. 
MATTHEW  HALE,  IMPLEADED,  ETC.,  RESPONDENT^/ 

90  X.  V.  326,  43  Am.  Rep.  173  (1882). 

Appeal  from  judgment  of  the  general  term  of  the  Supreme 
Court,  in  the  third  judicial  department,  entered  upon  an  order 
made  May  14,  1881,  which  affirmed  a  judgment  in  favor  of  defend- 
ant Hale,  entered  upon  a  decision  of  the  court  on  trial  at  special 
term. 

This  action  was  brought  to  foreclose  a  mortgage  executed  by  de- 
fendant Cameron,  which  mortgage  with  the  accompanying  bond 
had  been  assigned  by  defendant  Hale  to  plaintiff.  In  and  by  the 
assignment,  Hale  guaranteed  the  payment  of  the  bond ;  this  was  set 
forth  in  the  complaint,  and  a  personal  judgment  was  asked  against 
Hale  for  any  deficiency. 

It  appeared  that  in  October,  1874,  Hale  served  upon  plaintiff  a 
written  notice  requiring  it  to  foreclose  the  mortgage.  Subsequently 
he  withdrew  the  notice,  and  consented  that  his  guaranty  should  re- 
main in  full  force  so  long  as  the  interest  on  the  mortgage  was 
promptly  paid,  but  notified  plaintiff  to  proceed  at  once  to  foreclose 
whenever  there  was  a  default  in  payment  of  more  than  one  instal- 
ment of  interest.  Interest  was  payable  semi-annually,  and  none 
was  paid  after  October,  1876.  This  action  was  commenced  in  1879. 
Hale  was  not  notified  of  the  default  in  payment.  It  appeared  that 
after  such  default  the  property  greatly  depreciated  in  value. 

Andrews,  Cti.  J. :  The  doctrine  that  a  surety  is  entitled  by  no- 
tice to  call  upon  the  creditor  to  proceed  to  collect  the  debt  by  legal 
proceedings  against  the  principal,  on  the  debt  becoming  due,  al- 
though no  such  obligation  is  imposed  by  the  contract,  and  that  the 
creditor  failing  to  comply,  the  surety  is  discharged  to  the  extent  of 
the  loss  sustained  by  the  delay,  came  into  the  law  of  this  state  with 
Pain  v.  Packard  (13  Johns.  174),  which  was  an  action  against  the 


484 


SURETYSHIP    DEFENSES 


defendant  on  a  joint  note  signed  by  him  as  surety  for  one  Munsion, 
the  other  joint  maker,  given  for  a  debt  owing  by  Munsion  to  the 
plaintiff.  The  court  held  that  the  surety  was  discharged  by  the  de- 
lay of  the  creditor  to  proceed  after  notice  to  collect  the  note  of 
Munsion,  he  having  subsequently  become  insolvent.  The  same  de- 
cision, under  circumstances  substantially  similar,  was  made  by  the 
court  of  errors  in  King  v.  Baldwin  (17  Johns.  384),  overruling 
the  chancellor  (2  Johns.  Ch.  558).  The  doctrine  of  Pain  v.  Pack- 
ard, though  frequently  criticized,  has  not  been  overruled,  but  the 
courts  have  not  been  disposed  to  apply  it,  except  in  cases  where  the 
surety  became  such  at  the  inception  of  the  contract,  or  that  relation 
was  created  by  dealings  between  the  parties  originally  bound  by 
the  contract  subsequent  thereto  of  which  the  creditor  had  notice. 
In  Trimble  v.  Thorne  (16  Johns.  151),  the  court  refused  to  apply 
it  to  the  case  of  an  indorser  for  value  on  the  ground  that  the  in- 
dorser,  though  in  the  nature  of  a  surety,  is  answerable  upon  an  inde- 
pendent contract,  and  that  it  was  his  duty  to  take  up  the  bill  when 
dishonored. 

Spencer,  Ch.  J.,  in  his  opinion  in  King  v.  Baldwin  (17  Johns. 
386),  seems  to  assume  that  a  surety  may  always  proceed  in  a  court 
of  equity,  after  the  debt  became  due,  to  compel  the  creditor  to  collect 
of  the  principal  debtor.  But  the  authorities  do  not  sustain  the  broad 
proposition  assumed  by  the  learned  judge.  There  must  be  some 
specific  equity  beyond  the  mere  relation  of  surety  and  creditor  to 
entitle  the  surety  to  this  relief.  (Hayes  v.  Ward,  4  Johns.  Ch. 
131;  in  re  Babcock,  3  Story  393;  Marsh  v.  Pike,  1  Sandf.  Ch. 
210;  S.  C,  10  Paige  595;  Wright  v.  Nutt,  3  Bro.  Ch.  326;  Story's 
Eq.,  Para.  327;  2  L.  C.  Eq.  1890.)  In  the  leading  opinion  in  King 
v.  Baldwin,  the  doctrine  of  Pain  v.  Packard  was  put  on  the  ground 
of  a  moral  or  equitable  duty  resting  upon  the  creditor  to  obtain  pay- 
ment of  the  principal  debtor,  and  not  from  the  surety,  unless  the 
principal  is  unable  to  pay,  and  that  this  accords  with  the  presumed 
intention  of  the  parties.  This  reasoning  applies  where  the  strict 
relation  of  principal  and  surety  exists,  and  the  latter  has  entered 
into  the  contract  solely  for  the  benefit  of  the  principal  debtor,  and 
the  doctrine  may  perhaps  be  consistently  applied  in  special  cases 
where  the  relation  is  created  by  subsequent  dealings  between  the 
original  debtors,  as  in  Colgrove  v.  Tallman  (67  N.  Y.  95,  23  Am. 
Rep.  90).  The  case  of  Remsen  v.  Beekman  (25  N.  Y.  552)  is 
within  the  principle  of  Pain  v.  Packard.  The  defendant  in  that  case 
was  a  surety  in  form  as  well  as  in  fact,  having  guaranteed  the  bond 
of  one  Livingston  that  he  might  obtain  the  release  of  a  part  of 
mortgaged  premises  from  the  plaintiff's  mortgage. 

The  case  here  is  that  of  a  guaranty  of  payment  made  by  a  vendor, 
on  the  sale  to  the  plaintiff  of  a  bond  and  mortgage,  the  former  re- 
ceiving the  full  amount  of  the  security  as  the  consideration  of  the 
transfer,  and  the  question  is  whether  the  doctrine  of  Pain  v.  Pack- 


FAILURE    TO    SUE    AFTER    NOTICE  485 

ard  applies  so  as  to  release  the  defendant  from  liability  on  his  guar- 
anty by  reason  of  the  neglect  of  the  plaintiff,  as  assignee  of  the 
bond  and  mortgage,  to  proceed  after  notice  to  collect  it,  the  prop- 
erty having  meanwhile  depreciated  in  value,  and  the  obligor  having 
become  insolvent. 

The  general  rule  is  well  settled,  that  mere  delay  by  a  creditor  to 
collect  of  the  principal  debtor,  or  to  proceed  against  a  fund  pledged' 
by^him  for  the  payment  of  the  debt,  will  not  exonerate  the  surety 
or  affect  his  liability,  notwithstanding  loss  may  have  resulted*  From 
the  delay.     (Shroeppell  v.  Shaw,  3  Const.  446;   King   v.  Baldwin; 
2  Johns.  Ch.  558;  Eyre  v.  Everett,  2  Russ.  381;  Story's  Equity  Jj-y(&< 
Para.  326.)     The  rule  of  course  yields  where  jthe  duty  to  proceed 
wjth_diligence  to  collect  of  the  principal  debtor  is  imposed  by  the 
contract,  as  in  a  case  of  guaranty  of  collection.'!    (Northern  Ins.  Co. 
v.  Wright,  76  N.  Y.  445.)     The  creditor  in  such  case  is  bound  to 
take  the  necessary  steps  to  enforce  payment  after  the  debt  becomes 
due,  without  notice  from  the  guarantor.     The  distinction  between^ 
the  situation  of  the  defendant  in  this  case  and  of  the  surety  in  the 
case  of  Pain  v.  Packard  is  very  broad.     The  relation  of  principal 
and  surety  never  existed  between  the  defendant  and  the  mortgagor.  ;' 
Their  relation  was  that  of  debtor  and  creditor  simply.    Nor  were 
their   relations   changed   by   the   conveyance   by   the   mortgagor   to 
Shaffer,  who  in  the  grant  assumed  the  payment  of  the  mortgage.^  a 
But  the  land,  after  the  conveyance  became  in  equity  the  primary 
fund  for  the  payment  of  the  debt,  and  the  holder  of  the  mortgage,  P* 
with  notice  of  the  grant,  could  not  release  the  land,  or  impair  the 
lien  of  the  mortgage  to  the  prejudice  of  the  original  debtor.     And 
in  case  of  foreclosure,  the  court,  having  all  the  parties  before  it, 
would  by  its  decree,  adjust  the  several  obligations  of  the  parties,  .. 
according  to  their  respective  equities.     (Calvo  v.  Davies,  73  N.  Y. 
211;  29  Am.  Rep.  130;  Marshall  v.  Davies,  78  N.  Y.  414.)     The 
guaranty  of  the  defendant  was  not  entered  into  for  the  benefit  of 
the  original  debtor,  but  for  his  own  benefit,  subsequent  to  the  orig-    i 
inal  transaction,   and  upon   a  new  and   independent  consideration 
moving  from  the  plaintiff.     The  engagement  was  collateral  in  form 
but  it  was  in  substance  an  original  undertaking,  and  an  immediate 
right  of  action  accrued  thereon  to  the  plaintiff,   on  the  mortgage 
debt  becoming  due.     (Cardell  v.  McNiel,  21  N.  Y.  336.)     It  was, 
by  the  contract,  the  duty  of  the  defendant  to  pay  the  mortgage  when 
the  debt  matured.    The  neglect  in  the  first  instance  was  his,  and  he 
could  not,  we  think,  by  notice,  impose  upon  his  assignee  the  duty* 
of  proceeding  against  the  land.     Assuming  that  in  some  respects 
he  stood  in  the  relation  of  a  surety,  "it  was  his  business,"  as  said  by 
Lord   Eldon,   in   Wright   v.    Simpson    (6  Ves.    Jr.    714),    "to   see 
whether  the  principal  pays,  and  not  that  of  the  creditor."     It  was 
said  by  the  court,  in  Wells  v.  Mann   (45  N.  Y.  327,  6  Am.  Rep. 
93),  that  "it  is  the  right  of  a  surety  to  pay  the  debt  and  prosecute 


486 


SURETYSHIP   DEFENSES 


the  principal,  and  one  who  for  value  transfers  the  debt  or  se- 
curity, and  thereupon  becomes  guarantor  or  indorser,  can  protect 
himself  against  the  consequences  of  delay  in  enforcing  the  princi- 
pal obligation,  and  can  not  by  notice  impose  upon  the  creditor  the 
duty  of  active  diligence  at  the  risk  of  discharging  the  surety  by 
'  omitting— it~-  The  qualification  of  the  doctrine  of  Pain  v.~Packard, 
stated  in  Wells  v.  Mann,  was  recognized  in  Colgrove  v.  Tallman 
(supra),  and  is,  we  think,  well  founded.  The  circumstances  under 
which  the  guaranty  was  executed,  do  not  justify  the  inference  of 
an  intention  between  the  parties  that  the  plaintiff  should  resort  to 
the  land  before  calling  upon  the  defendant  to  answer  his  obliga- 
tion, and  as  the  right  of  the  defendant  to  subrogation  to  the  secur- 
ity on  payment  of  the  mortgage  was  perfect  and  embarrassed,  his 
remedy,  if  he  desired  to  hasten  the  collection,  was  to  perform  his 
contract  and  proceed  himself  to  enforce  the  security.  This  case  is 
not,  we  think,  governed  by  the  doctrine  of  Pain  v.  Packard,  and  the 
judgment,  so  far  as  it  relieves  the  defendant  from  liability  for  any 
deficiency  which  may  arise  on  the  sale  of  the  mortgage  premises,  is 
erroneous. 

Judgment  as  to  the  defendant,  Hale,  reversed,  and  modified  by 
inserting  a  provision  adjudging  the  defendant  liable  for  any  de- 
ficiency,  and,  as  so  modified,  affirmed,  with  costs' 

All  concur,  except  Rapallo,  J.,  absent. 

Judgment  accordingly. 


/I 


v 


General  Code  of  Ohio. 
Section  12191. 

A  person  bound  as  surety  in  a  written  instrument  for  the  payment  of 
money  or  other  valuable  thing,  if  a  right  of  action  accrued  thereon,  may  re- 
quire his  creditor,  by  notice  in  writing,  to  commence  an  action  on  such  in- 
strument forthwith,  again  st~the  principal  debtor.  Unless  the  creditor  com- 
mences such  action  within  a  reasonable  time  thereafter,  and  proceeds  with 
due  diligence,  in  the  ordinary  course  of  law,  to  recover  judgment  against  the 
principal  debtor  for  the  money  or  other  valuable  thing  due  thereby,  and  to 
make  by  execution  the  amount  thereof,  the  creditor,  or  the  assignee  of  such 
instrument,  so  failing  to  comply  with  the  requisition  of  such  surety,  thereby 
shall  forfeit  the  right  which  he  would  otherwise  have  to  demand  and  receive 
of  him  the  amount  due  thereon. 

Strict  compliance  with  statutes  of  this  kind  is  necessary  if  the  surety  would 
avail  himself  of  i^fte  defense  of  having  given  notice  to  sue.  Moormann  v. 
Voss.  77  Ohio  St.  270,  83  N.  E.  76 ;  Thompson  v.  Treller,  82  Ark.  247,  101  S. 
W.  174;  Williams  v.  Ogg,  42  Tex.  Civ.  App.  558,  94  S.  W.  420;  Edmonton  v. 
Potts,  111  Va.  79,  68  S.  E.  254,  21  Ann.  Cas.  1365.  - 


DISCHARGE    OF    PRINCIPAL    DEBTOR  487 


SECTION  8.    DICHARGE  OF  THE  PRINCIPAL  DEBTOR 

63  III.  272  (1872). 


Jjr 

WM.  D.  TROTTER,  USE,  ETC.,  v.  JAMES  W.  STRONG, 
IMPLEADED,  ETC. 


This  was  an  action  of  debt,  brought  by  appellant  in  the  Morgan 


Mr.  Justice  Walker  delivered  the  opinion  of  the  court : 


circuit  court  against  appellee,  Charles  D.  Roberts,  George  W.  Graves 
and  Charles  Chappell,  on  a  judgment  previously  recovered  in  that 
court  by  appellant  against  appellee  and  his  code  fondants.  The 
amount  of  the  recovery  was  $2,039.58.  There  was  no  service,  but 
appellee,  Strong,  appeared  to  the  action  and  filed  a  plea :  that  the  r 
foundation  of  the  judgment  sued  upon  was  a  promissory  note  given 
by  defendants  to  plaintiff,  and  that  Graves  and  Roberts  were  the 
principaL-4ebtors,  and  Chappell  and  appellee  were  only  sureties 
thereon ;  that  since  the  rendition  of  the  judgment,  and  before  the 
commencement  of  the  suit,  appellant,  without  notice  to,  or  the  con- 
sent of  appellee,  and  without  his  subsequent  ratification,  entered 
into  an  agreement  with  Roberts,  one  of  the  principal  debtors  in  the 
jnote  and  judgment,  that,  in  consideration  that  he  would  pay  $500 
on  the  judgment,  and  would  give  security  for  its  payment,  he  would 
never  collect  any  further  portion  of  the  judgment  from  him,  and 
thai-the -security  was  given  according  to  the  agreement;  that  Rob- 
erts_-was_then  insolvent;  that  appellee  was  and  is  thereby  released 
from  further  liability. 

To  this  appellant  filed  a  replication  admitting  the  agreement  by 
plaintiff  not  to  enforce  the  judgment  against  Roberts,  but  averred 
that  he  did  not  agree  that  he  would  collect  nothing  more  from  the-* 
other  defendants  to  the  judgment,  or  to  release  them  from  its  pay- 
ment. To  this  replication  appellee  filed  a  demurrer  which  was  sus- 
tained by  the  court,  and  appellant  standing  by  his  replication,  the 
court  rendered  judgment  in  favor  of  appellee,  from  which  this 
appeal  is  prosecuted.  And  it  is  urged  that  the  court  should  have  v 
sustained  the  demurrer  to  the  plea,  and  not  to  the  replication. 

It  is  urged  that,  as  no  release  was  executed,  it  had  no  binding 
effect  on  the  parties  to  the  agreement,  and  appellee  is  in  no  wise 
prejudiced  by  the  arrangement.  Had  this  contract  been  made  in 
reference  to  the  note  upon  which  the  judgment  was  recovered,  there 
could  be  no  doubt  that  it  would  have  operated  as  a  discharge  of 
the  sureties.  In  such  cases,  an  extension  of  time  by  a  binding  agree- 
ment, capable  of  being  enforced,  not  to  sue,  when  made  with  the 
principal  debtor  without  the  consent  of  the  sureties,  operates  to 
discharge  them;  or,  such  an  agreement  with  the  principal  that  the 


483' 


SURETYSHIP    DEFENSES 


creditor  will  receive  a  part  only  of  his  debt,  and  would  not  sue 
/or  the  remainder,  would  produce  the  same  result. 

When  a  creditor  receives  a  part  of  the  claim  from  the  principal 
debtofpunder  such  circumstances  as  would  constitute  a  .satisfaction 
of  his  liability,  the  surety  must  be  discharged.  [In  such  a  case  the 
debt  is  satisfied,  and  the  surety  can  not  be  liable  for  the  payment 
of  a  debt  that  is  discharged.  If  he  were  held  liable,  he  could  not 
recover  over  against  the  principal,  because  he  is  discharged  from 
the  debt  and  owes  the  creditor  nothing,  and  the  surety  could  not 
recover  for  money  paid  to  the  use  of  the  principal,  as  he  owes 
nothing,  and  when  the  surety  makes  the  payment  it  can  not  be  for 
the  use  of  the  principal  debtor.  To  enforce  payment  from  the  surety 
under  such  circumstances  would  be  to  deprive  him  of  his  legal  right 
to  jbe  reimbursed  for  the  money  thus  paid.  \  It  would  change  the 
relations  of  principal  and  surety,  deprive  the  latter  of  a  legal  right, 
and  would  operate  unjustly.  (When  the  creditor,  therefore,  without 
the  assent  of  the  surety,  discharges  the  principal  debtor,  it  must 
follow  that  the  surety  can  no  longer  be  held  liable.    His  liability 


can  not  survive  that  of  his  principal,  unless  it  be  by  his  own  agree- 
ment. 

It  is,  however,  urged  that  in  this  case  there  was  no  consideration 
to  support  the  agreement.  When  Roberts  gave  Brown  as  surety  for 
the  payment  of  the  $500,  the  contract  was  consummated,  and  the 
fact  that  appellant  had  obtained  security  for  the  sum  was  a  con- 
sideration sufficient  in  law  to  support  the  agreement.  Had  he  sued 
on  the  note  given  by  Roberts  and  Brown,  they  could  not  have  in- 
terposed as  a  defense  the  want  of  consideration.  The  agreement 
to  discharge  Roberts  from  paying  any  further  sum  on  the  judg- 
ment could  have  been  effectually  replied  to  such  a  defense.  And 
should  appellant  attempt  to  enforce  the  judgment  against  Roberts, 
he  could  prevent  it  by  showing  the  agreement,  and  that  appellant, 
as  the  consideration  therefor,  had  obtained  a  new  security  and 
the  liability  of  another  person  not  a  party  to  the  judgment.  It  is 
a  valid  and  binding  agreement,  unless  such  contracts  have  no  force 
when  they  refer  to  a  judgment  instead  of  a  note  or  agreement,  not 
merged  in  a  judgment. 

Some  cases  have  held  that,  after  a  contract  has  been  reduced  to 
a  judgment,  the  equity  of  the  surety  terminates  with  regard  to  the 
creditor,  and  the  prior  obligation  in  the  new  one  created  by  the  law. 
These  cases  proceed  upon  the  ground  that  such  equities  can  be 
shown  neither  when  the  contract  is  under  seal,  nor  when  it  has 
been  reduced  to  a  judgment.  But  other  cases  hold  that,  as  the 
equity  of  the  surety  against  the  creditor  is  founded  upon  that  which 
exists  between  himself  and  the  principal,  it  survives  the  judgment. 
It  is  difficult  to  see  why  the  surety  should  be  protected  against  the 
interference  of  the  creditor  by  dealing  with  the  principal  to  the 
injury    of    the    surety    before,    and    can    not    be    after    the    judg- 


• 


DISCHARGE    OF    PRINCIPAL   DEBTOR 


489 


foe 


rrient  is  rendered.  To  give  time,  or  to  discharge  the  principal  after 
judgment,  would  be  as  injurious  to  the  surety  as  before  judgment. 
In  either  case  the  injury  is  the  same,  and  why  not  have  the  same 
protection  ?  One  of  two  sureties  may,  undeniably,  have  contribution 
after  payment  of  the  judgment,  and  the  surety  may  recover  over 
against  the  principal  when  he  has  satisfied  the  judgment.  Then, 
why  permit  the  creditor  to  release  or  discharge  the  principal,  and 
still  hold  the  surety  liable  when  he  can  not  have  contribution  from 
his  principal? 

Some  cases   favor  the  doctrine  that,  whenever  acts  would  dis- 
charge the  surety  before  judgment,  and  while  his  obligation  is  only 
one  of  contract,  will  have  the  same  effect  after  it  has  passed  into 
a  judgment.    The  Commonwealth  v.  Miller,  8  S.  &  R.  452;  Potts 
v.  Nathans,  1  W.  &  S.  155 ;  The  Manufacturers'  Bank  v.  The  Bank 
of  Pennsylvania,  7  W.  &  S.  335  ;  Talmadge  v.  Burlingame,  9  Barr 
21 ;  Carpenter  v.  King,  9  Mete.  511  ;  Bangs  v.  Strong,  10  Paige  11  ; 
7  Hill  520;  4  Comstock  315;  Boughton  v.  The  Bank  of  Orleans,  2 
Barb.  Ch.  R.  458.     And  the  rule  seems  to  be  more  consonant  with      £ 
reason   and   justice.    |lt  prevents   wrong  and   injury,  protects   the    / 
surety  in  his  just  right"  to  look  to  his  principal  for  indemnity  whenTTe  (    /'- 
is  damnified  by  his  undertaking,  and  prevents  the  creditor  from  dis-  f 
charging  the   principal  and   imposing  the  entire  burthen  upon  the  j 
surety  without  means  of  redress.     The  fact  that  appellant  did  noK 
agree  to  discharge  the  surety  does  not,  in  the  slightest  degree,  change 
his  rights.    Were  these  all  principals,  then  it  may  be  a  different  rule 
would  obtain,  but  we  are  not  prepared  to  hold  that  it  would. 

The  court  below  did  not  err  in  refusing  to  sustain  the  demurrer 
to  defendant's  plea,  and  the  judgment  must  be  affirmed. 

Judgment  affirmed. 

Accord :    Couch  v.  Waring,  9  Conn.  261. 


WILLIAM  SOHIER  v.  BENJAMIN  LOEING  ET  AL. 

60  Mass.  537  (1850). 

This  was  an  appeal  from  a  decision  of  Ellis  Gray  Loring,  Esquire, 
a  master  in  chancery  for  this  county,  overruling  the  motion  of  the 
appellant,  as  assignee  of  Edward  H.  Green  and  company,  insolvent 
debtors,  to  expunge  or  reduce  the  amount  of  certain  claims,  proved 
before  the  master  against  the  estate  of  Green  and  company.  The,. 
case  was  submitted  to  the  court  upon  the  following  agreed  state- 
ment of  facts:  On  the  23d  of  February,  1846,  a  warrant  was  issued 
by  the  said  master  against  the  estate  of  Edward  H.  Green  and 
John  E.  Short,  both  of  Boston,  merchants  and  partners,  doing  busi- 


490 


SURETYSHIP   DEFENSES 


ness  under  the  firm  of  Edward  H.  Green  and  company.  The  first 
publication  of  the  notice  required  by  the  warrant  was  made  on  the 
24th  of  February,  1846,  and,  on  the  11th  of  March  following,  the 
appellant  was  chosen  assignee,  and  duly  received  an  assignment 
of  all  the  insolvent's  estate. 

Previous  to  their  insolvency,  Green  and  company,  as  copartners, 
were  employed  by  Oliver  P.  Mills,  of  New  York,  to  make  and  ne- 
gotiate certain  bills  of  exchange,  drawn  on  the  firm  of  Mayor  and 
Wallace,  of  London ;  and  from  time  to  time,  as  opportunity  offered, 
Green  and  company  had  drawn  on  account  of  Mills  various  bills 
of  exchange,  against  consignments  of  goods  in  the  hands  of  Mayor\ 
and  Wallace  belonging  to  Mills,  which  bills  were  sold  in  the  usual 
course  of  business  to  the  appellee.   Green  and  company,  for  a  com-i 
mission   paid   to   them   by   Mills,    had   become    responsible   as   the/] 
drawers  or  indorsers  of  these  bills,  which  were  duly  accepted  by  I 
Mayor  and  Wallace,  but  were  not  paid  at  maturity.    Notice  of  then- 
dishonor  was  duly  sent  to  the  drawers,  and  the  bills  were  taken  up 
by  the  appellees,  and  proved  by  them  against  the  estate  of  Grein 
and  company. 

The  appellees,  whose  claims  were  thus  proved,  were  Hawes,  Gray 
and  company,  proved  on  the  10th  of  March,  1846;  Benjamin  Loring 
and  Levi  H.  Marsh,  executors  of  Elijah  Loring,  proved  on  the 
20th  of  March ;  Thomas  Tarbell  and  company,  proved  on  the  29th 
of  April,  1846;  and  Samuel  May  and  company,  proved  on  the  18th 
of  January,  1847;  the  whole  amounting  to  about  $26,000. 

The  bills  proved  by  Hawes,  Gray  and  company  were  drawn  by 
Mills  payable  to  his  own  order  and  indorsed  by  him  to  the  order 
of  Green  and  company,  and  by  them  indorsed.  The  bills  proved 
by  the  other  appellees  were  drawn  by  Green  and  company,  on  ac- 
count of  Mills.  All  the  bills  were  directed  to  Mayor  and  Wallace, 
and  were  by  them  accepted.  The  several  appellees  sent  their  bills 
to  England  in  payment  of  debts  or  to  make  purchases  there  during 
the  months  of  November  and  December,  1845 ;  and  the  bills  were/ 
at  maturity  returned  to  them  dishonored,  by  due  course  of  mail. 

At  a  meeting  of  the  parties  holding  bills  drawn  by  or  by  the  order 
of  Oliver  P.  Mills  held  in  London  on  the  5th  of  June,  1846,  a  prop- 
osition for  compromising  their  claims  against  Mayor  and  Wallace  on 
these  bills  was  agreed  to ;  and,  on  the  2nd  of  December  follow- 
ing, an  indenture  for  that  purpose  was  drawn  up  and  executed  at 
London  by  Mayor  and  Wallace,  by  these  bill  holders,  including  the 
appellees,  by  their  respective  agents,  and  by  certain  trustees  ap- 
pointed under  the  composition  deed.  This  composition  deed  recited 
that  Mayor  and  Wallace,  being  unable  to  pay  in  full  all  their  debts, 
had  proposed  to  pay  their  creditors,  including  the  parties  holding 
bills  drawn  by  or  by  the  order  of  Oliver  P.  Mills  and  accepted  by 
Mayor  and  Wallace,  a  composition  of  five  shillings  in  the  pound, 
on  the  amount  of  their  debts,  by  three  equal  instalments,  payable 


DISCHARGE    OF    PRINCIPAL    DEBTOR  491 

at  three,  six,  and  nine  months  from  the  date  of  the  deed,  and  to 
be  secured  by  promissory  notes  of  James  Wallace,  payable  at  these  r 
periods  respectively,  in  full  satisfaction  and  discharge  of  such 
debts;  and  that  their  creditors,  including  said  bill  holders,  had 
consented  to  and  agreed  to  accept  such  composition ;  and  that  the 
bill  holders  had  received  in  addition  to  this  composition  four  shil- 
lings in  the  pound  in  money.  Mayor  and  Wallace  by  this  deed  as- 
signed certain  goods  to  certain  trustees  therein  named,  in  trust,  to 
sell  and  convert  the  same  into  money  and  divide  the  proceeds  among 
the  bill  holders  parties  to  the  composition  deed;  and Jhe  bill  holders 
covenanted  not  to  sue  Mayor  and  Wallace  on  said  bills  of  exchange, 
unless  on  default  of  payment  of  the  notes  of  James  Wallace;  and 
that  upon  payment  of  those  notes  to  the  trustees,  the  bill  holders 
would  release  -Mayor  and  Wallace  from  the  said  bills  of  exchange. 
Then  foTIowedthis  clause:  "Provided  always,  and  it  is  hereby  ex-  ', 
pressly  agreed  and  declared,  that  it  shall  be  lawful  for  the  said  bill 
holders,  parties  hereto  of  the  second  part,  to  execute  these  pres- 
ents without  prejudice  to  their  rights  and  remedies  upon  the  said 
bills,  mentioned  in  the  second  schedule  hereunder  written,  respec- 
tively, or  upon  collateral  or  other  securities  for  the  same,  respec- 
tively, against  any  person  or  persons  whomsoever  other  than  the 
said  McKedy  Mayor  and  James  Wallace,  or  either  of  them,  their 
or  either  of  their  heirs,  executors,  and  administrators ;  and  that, 
notwithstanding  these  presents,  or  anything  herein  contained,  they, 
the  said  bill  holders,  respectively,  and  their  respective  executors,- 
administrators,  and  assigns,  shall  be  at  liberty  to  enforce  and  adopt 
all  or  any  of  such  rights  or  remedies,  against  any  such  other  person 
or  persons,  in  the  same  manner  as  if  these  presents  had  not  been 
executed."  And  the  bill  holders  covenanted  to  indemnify  the  trus- 
tees from  all  claims  for  or  on  account  of  the  goods  assigned  to 
them,  in  trust,  or  the  payment  of  any  dividend  out  of  the  proceeds 
thereof. 

The  dividends  which  were  made  under  this  indenture,  amounting  ^  a 
to  four  shillings  in  the  pound,  have  been  received  by  the  appellees 
respectively. 

On  the  4th  of  August,  1847,  the  appellant,  as  the  assignee  of 

Green  and  company,  filed  with  the  master  in  chancery  a   written 

motion  that  the  claims  of  the  several  appellees  should  be  expunged 

from  the  list  of  debts  proved  against  Green  and  company;  or,  if 

/  not  expunged,  that  they  should  be  reduced  in  amount,  by  deducting 

j   therefrom  the  payments  received  by  the  appellees,  respectively,  un- 

/    der  the  provisions  of  the  composition  deed ;  but  the  master,  after  due 

hearing,  overruled  the  motion,  and  the  assignee  appealed  to  this 

court. 

It  was  agreed  that  if  the  courts  should  sustain  the  master's  deci- 
sion judgment  should  be  entered  for  the  appellee,  but  if  the  court 
should  reverse  the  decision  of  the  master,  the  case  might  be  sent 


492  SURETYSHIP   DEFENSES 

to  a  jury,  to  be  tried  on  such  issue  or  issues  as  the  court  should 
direct,  or  otherwise  disposed  of  as  they  should  determine. 

Metcalf,  J. :  The  composition  made  with  the  acceptors  would 
have  discharged  the  drawers  and  indorsers,  if  there  had  not  been 
inserted  in  the  composition  deed  a  proviso  that  it  should  not  preju- 
dice the  holders'  remedies  against  any  other  parties  besides  the 
acceptors.  Byles  on  Bills  (2d  Amer.  ed.),  357,  358.  The  first  ques- 
tion in  the  case,  therefore,  is :  what  is  the  legal  effect  of  that  pro-  , 
viso? 

It  is  settled,  in  England,  that  a  discharge  or  giving  time,  by  a\ 
creditor  to  his  principal  debtor,  will  not  discharge  the  surety,  if 
there  be  an  agreement  between  the  creditor  and  the  principal  debtor  i 
that  the  surety  shall  not  be  discharged.  And  this  rule  of  law  is 
applicable  to  parties  to  bills  of  exchange  and  promissory  notes, 
who  are  liable  only  on  the  failure  of  prior  parties,  though  they  are 
not  technically  sureties  of  those  parties.  1  Steph.  N.  P.  936;  Mon- 
tagu on  Composition,  36;  Burge  on  Suretvship,  210;  Chit,  on  Bills 
(10th  Amer.  ed.),  420;  Byles  on  Bills  (2d  Amer.  ed.),  202.  See 
also  Mallet  v.  Thompson,  5  Esp.  R.  178.  The  same  doctrine  was 
advanced  by  Messrs.  Hamilton  and  Riker,  in  argument,  and  was 
recognized  by  the  Supreme  Court  of  New  York,  in  Stewart  v.  Eden, 
2  Chaines  121,  very  soon  after  it  had  been  laid  down  by  Lord 
Eldon,  in  Ex  Parte  Gifford,  6  Ves.  805.  In  this  last  case  Lord 
Eldon  said  sureties  would  not  be  discharged  by  a  discharge  of  the 
principal,  if  there  was  "a  reserve  of  the  remedy"  against  the  surety, 
and  that  Lord  Thurlow  had  so  admitted  in  a  previous  case  not  re- 
ported. He  afterwards  laid  down  this  principle  more  authoritatively 
in  Boultbee  v.  Stubbs,  18  Ves.  20,  and  Ex  Parte  Carstairs,  1  Buck 
560.  In  Ex  Parte  Glendinning,  1  Buck  517,  he  said,  "If  a  man  by, 
deed  agree  to  give  his  principal  debtor  time,  and  in  the  deed  ex- 
pressly stipulate  for  the  reservation  of  all  his  remedies  against 
other  persons,  they  shall  still  remain  liable,  notwithstanding  the 
arrangement  between  their  principal  and  the  creditor." 

In  Nicols  v.  Norris,  3  Barn.  &  Adolph  41,  the  court  of  king's 
bench  decided  that  a  composition  like  that  in  the  present  case,  made 
with  the  indorser  of  a  note  given  for  his  accommodation,  did  not 
discharge  the  maker.  It  was  said  by  the  court  that  such  composi- 
tion deeds  were  very  common,  and  that  the  special  proviso  took  the 
case  out  of  the  common  rule  as  to  the  discharge  of  sureties  by 
giving  time  to  the  principal. 

In  1846  the  case  of  Kearsley  v.  Cole,  16  Mees.  &  Welsb.  128, 
came  before  the  court  of  exchequer.  That  was  an  action  for  money 
paid  for  the  defendant,  for  whom  the  plaintiff  had  been  surety. 
The  defense  was  that  the  defendant  had  made  an  assignment  to 
his  creditors,  who  had  covenanted  not  to  sue  him.  But  it  appeared 
that  there  was  a  proviso  in  the  deed  of  assignment  that  any  creditor 


DISCHARGE    OF    PRINCIPAL    DEBTOR  493 

might  execute  it  without  prejudice  to  any  specific  lien  or  security,  or 
to  any  claim  against  any  surety,  and  that  this  proviso  was  inserted 
with  the  knowledge  and  consent  of  the  plaintiff.  He  was  afterward 
called  on  as  surety  of  the  defendant,  and  paid  the  claim.  The  ques- 
tion was  whether  this  payment  was  to  the  use  of  the  defendant,  or 
was  a  voluntary  payment,  which  gave  him  no  right  to  reimbursement. 
The  court  held  that  the  plaintiff  was  entitled  to  recover ;  he  not  hav- 
ing been  discharged  from  his  suretyship  by  the  deed  of  assignment. 
The  opinion  of  the  court  was  given  by  Mr.  Baron  Parke,  who  fully 
and  clearly  stated  the  decisions  and  the  principles  upon  which  they 
were  made,  as  follows:  "The  question  is,  what  is  the  effect  of  a  dis- 
charge withxeserve  or  remedies  consented  to  by  the  surety  ?  We  do 
not  mean  to  intimate  any  doubt  as  to  the  effect  of  a  reserve  of  rem- 
edies without  such  consent ;  and  the  cases  are  numerous  that  it  pre- 
vents the  discharge  of  a  surety,  which  would  otherwise  be  the  result 
of  a  composition  with,  or  giving  time  to,  a  debtor,  by  a  binding  in- 
strument ;  and  the  reserve  of  remedies  has  that  effect  upon  this  prin- 
ciple— first,  that  it  rebuts  the  implication  that  the  surety  was  meant 
to  be  discharged,  which  is  one  of  the  reasons  why  the  surety  is 
ordinarily  exonerated  by  such  a  transaction ;  and,  secondly,  that  it 
prevents  the  rights  of  the  surety  against  the  debtor  being  impaired 
— the  injury  to  such  rights  being  the  other  reason ;  for  the  debtor 
can  not  complain  if,  the  instant  afterwards,  the  surety  enforces 
those  rights  against  him ;  and  his  consent  that  the  creditor  shall  have 
recourse  against  the  surety  is,  impliedly,  a  consent  that  the  surety 
shall  have  recourse  against  him.  This  is  the  effect  of  what  Lord 
Eldon  says  in  Ex  Parte  Gifford  and  Boultbee  v.  Stubbs,  as  to  the 
reserve  of  remedies ;  and  the  general  proposition  that,  with  that  / 
recourse,  the  composition  or  giving  time  does  not  discharge  the 
surety,  is  supported  by  those  and  the  following  cases :  Ex  Parte 
Glendinning ;  Nicols  v.  Norris ;  Smith  v.  Winter,  4  Mees.  &  Welsh. 
454,  and  others.  This  point  must,  therefore,  be  considered  as  set- 
tled. Some  remarks  have,  indeed,  been  made  by  Lord  Denman,  in 
the  case  of  Nicholson  v.  Revill,  4  Adolph.  &  Ellis  675,  on  the  doc- 
trine of  Lord  Eldon  in  Ex  Parte  Gifford,  throwing  doubt  on  its 
correctness,  on  the  supposition  that  Lord  Eldon  had  held  that  a 
creditor  could  release  one  joint  and  several  debtor,  and  hold  an- 
other liable  by  a  reserve  of  remedies ;  which  would  certainly  be 
against  the  decision  in  Cheetham  v.  Ward,  1  Bos.  &  Pul.  630,  unless 
the  instrument  of  release  could,  by  reason  of  the  context,  be  con- 
strued to  be  a  covenant  not  to  sue,  as  it  was  in  the  case  of  Solly  v. 
Forbes,  2  Brod.  &  Bing.  38.  But  we  consider  it  clear  that  Lord 
Eldon  meant  only  to  apply  the  doctrine  to  cases  where  there  was 
no  release,  but  a  composition,  or  giving  time,  not  amounting  to  a 
release,  which  is  the  present  case ;  and,  with  reference  to  it,  the 
rule  laid  down  by  Lord  Eldon  is  not  impeached  by  Lord  Denman's 


494 


SURETYSHIP   DEFENSES 


remarks."  And  the  decision  of  the  court  was  that  the  surety's  con- 
sent to  the  creditors'  reserve  of  their  remedy  against  him  did  not 
alter  the  law  of  the  case  in  favor  of  the  principal. 

These  doctrines  were  incidentally  recognized  by  Mr.  Justice  Wilde 
in  American  Bank  v.  Baker,  4  Met.  175,  and  were  adopted  and 
applied  by  the  court  of  appeals  of  Maryland  in  Clagett  v.  Salmon, 
5  Gill  &  Johns.  314. 

It  is  very  obvious  that  a  principal  debtor  may  gain  little  or  noth- 
ing by  such  a  composition  as  this  with  his  creditor;  inasmuch  as 
he  is  left  liable  to  the  like  proceedings  against  him  by  his  sureties, 
which  his  creditor  might  have  instituted,  if  no  composition  had  been 
made.  But  if  he  pleases  to  subject  himself  to  that  liability,  by  vol- 
untarily executing  an  agreement  which  has  that  effect,  there  is  no 
legal  reason  why  he  should  not  be  held  to  that  agreement. 

On  these  grounds  we  are  of  opinion  that  the  holders  of  the  bills, 
in  the  present  case,  Avere  rightly  permitted  "by  the  master  to  prove 
their  claims  thereon  against  the  drawers  and  Indorsers ;  the  latter 
not  having  been  discharged  by  the  composition  made  by  the  former 
with  the  acceptors. 

"  The  second  question  respects  the  amount  which  the  holders  were 
entitled  to  prove  against  the  drawers  and  indorsers.  And  we  are 
of  opinion  that  each  was  entitled  to  prove  the  full  sum  due  and 
unpaid,  at  the  time  of  making  proof,  on  the  bill  or  bills  held  by 
him.  This  question  is  not  settled  by  any  provision  in  our  insolvent 
laws ;  and  we  therefore  adopt  the  rule  applied  in  bankruptcy.  That 
rule  is  that  a  holder  may  prove  his  claim,  under  commissions  against 
the  drawer,  acceptor,  and  indorser,  and)  receive  a  dividend  from 
each  upon  his  whole  claim,  provided  he  does  not  receive,  in'^the^ 
whole,  more  than  his  full  due.  But  there  is  a  distinction  in  this 
case,  when  a  holder  applies  to  prove  his  debt  against  one  party, 
after  having  received  a  part  of  it  from  another,  and  when  he  ap- 
plies to  prove  before  receiving  any  payment  or  composition  from 
another  party,  or  before  a  dividend  has  been  declared  in  his  favor, 
under  a  commission  against  another  party.  Any  sum  actually  re- 
ceived in  payment,  from  any  party  to  a  bill,  before  proof  made 
against  another,  must  be  deducted  from  the  amount  to  be  proved 
against  any  other  party.  So,  as  a  general  rule,  must  the  amount  of 
the  dividend,  declared  on  the  estate  of  another  party,  be  deducted. 
Cooper  v.  Pepys,  and  Ex  Parte  Wildman,  1  Atk.  107,  109;  see  5 
Ves.  (Perkins'  ed.)  449,  note;  Eden's  Bankr.  Law  (2d  ed.),  155; 
1  Mont.  &  Ayrt.  Pract.  in  Bankruptcy,  202,  203. 

In  the  present  case  we  regard  the  composition  made  with  the 
acceptors  on  the  23d  of  December,  1846,  as  payment  of  one-fifth 
of  the  amount  of  the  bills.  The  acceptors  then  conveyed  property 
in  trust  to  pay  one-fifth,  and  the  holders  accepted  that  conveyance. 
I'.ut  all  the  holders,  except  May  and  company,  made  proof  of  their 
claims  against  the  estate  of  Green  and  Short,  drawers  or  indorsers, 


T  DISCHARGE    OF    PRINCIPAL   DEBTOR  495 

\ 

before__they  made  the  composition  with  the  acceptors,  and  were 
therefore  entitled,  according  to  the  rule  just  stated,  to  prove  the 
full  amount  then  due  on  their  bills.  May  and  company  having  made 
proof  after  they  had  executed  the  composition  deed,  by  which  they, 
in  legal  effect,  had  received  part  payment  from  the  acceptors,  were 
entitled  to  prove  only  the  amount  due  after  deducting  that  payment. 
The  proceedings  of  the  master,  from  which  this  appeal  was  taken, 
are  affirmed  in  all  things  except  as  to  the  amount  proved  by  May 
and  company,  which  is  to  be  reduced  by  deducting  the  sum  received 
by  them  under  the  composition  with  the  acceptors. 

Accord :   Rockville  Nat.  Bank  v.  Holt,  58  Conn.  526,  20  Atl.  669,  18  Am.  St. 
293 ;  Mueller  v.  Dobschuetz,  89  111.  176. 


JONES,  RESPONDENT,  v.  WARD,  APPELLANT 
71  Wis.  152,  36  N.  IV.  711  (1888). 

Action  on  two  promissory  notes.  The  facts  in  the  case,  as  they 
appear  by  the  testimony  and  the  findings  of  the  court,  are  as  fol- 
lows : 

November  11,  1884,  one  McArthur  and  the  plaintiff,  Jones,  were 
the  owners,  in  unequal  shares,  of  a  printing  establishment  consist- 
ing of  presses  and  printing  materials,  from  which  establishment 
was  issued  a  weekly  newspaper  called  "The  Dodgeville  Sun."  They 
also  owned  a  quantity  of  book  accounts,  which  had  accrued  in  their 
business.  On  that  day  McArthur  sold  a  portion  of  his  interest  in 
sudi_^tablishment  to  ..one.  George  E.  Ward.  December  1,  1884, 
George  E.  sold  a  portion  of  his  interest  in  the  property  to  the  plain- 
tvtj^  spying  him  a  note  for  $345,  which  the  defendant,  his  brother, 
signed  as  surety.  This  is  one  of  the  notes  in  suit  in  this  action, 
but  the  defendant's  liability  thereon  is  not  disputed.  December  12,  . 
1884,  the  plaintiff  sold  the  interest  in  the  property  to  one  Cook,  for 
$600,  taking  therefor  three  notes  of  $200  each,  signed  by  Cook  and 
also  by  the  defendant  as  a  surety  for  Cook.  One  of  these  $200 
notes  is  sued  upon  in  this  action,  and  the  defendant  contests  his 
liability  thereon.  At  the  same  time,  Cook  executed  to  the  defendant 
a  chattel  mortgage  on  the  property  so  purchased  by  him,  conditional 
for  the  payment  of  the  three  $200  notes,  upon  which  the  defendant 
had  thus  become  liable  as  surety.  January  3,  1885,  George  E.  Ward 
sold  his  interest  in  the  property  to  McArthur.  January  8,  1885, 
•  Cook  sold  his  interest  therein  to  George  E.  Ward.  One  of  the  con- 
siderations of  this  sale  was  that  the  latter  should  induce  the  plaintiff  ' 
to  release  Cook  from  liability  on  the  three  $200  notes.  The  plaintiff 
did  so  release  Cook,  without  the  consent  or  knowledge  of  the  dg- 
fjmjdant.  No  payment  was  made  on  the  notes  as  consideration  of 
the  release.    January  28,  1885,  George  E.  Ward,  by  the  defendant 


n/1^/  ^  • 


496 


SURETYSHIP   DEFENSES 


,U~^J , 


as  his  agent,  sold  his  interest  in  the  property  to  McArthur.  As 
one  of  the  considerations  of  this  sale  the  defendant  assigned  to 
McArthur  the  mortgage  of  December  12,  1884,  executed  to  him  by 
Cook.  At  the  date  of  such  assignment,  such  mortgage  interest  was 
i  worth  more  than  the  amount  due  on  the  $200  note  in  suit.  Such 
assignment  was  made  without  the  consent  of  the  plaintiff,  and,  after 
it  was  made,  McArthur  withdrew  the  mortgage  from  the  files  of  the 
town  clerk's  office. 

From  the  above  facts  the  circuit  court  held  that  the  defendant, 
being  fully  indemnified  by  Cook's  chattel  mortgage  to  the  extent  of 
the  $200  note  in  suit,  is  liable  to  the  plaintiff  for  the  amount  of 
such  note.  Judgment  for  the  plaintiff  was  entered  accordingly  for 
tl~e  amount  due  on  both  notes  in  suit,  from  which  judgment  the  de- 
f  ;ndant  appeals. 

Lyon,  J. :  Briefly  stated,  the  case,  so  far  as  there  is  any  contro- 
versy, is  as  follows :  The  defendant  became  surety  for  Cook's  debt 
|  to  the  plaintiff,  and  Cook  indemnified  him  by  executing  to  him  a 
I  chattel  mortgage  on  certain  property.  The  plaintiff  released  Cook 
/  from  liability  for  such  debt,  without  the  consent  of  the  defendant. 
/  Afterwards,  defendant  sold  his  security  to  McArthur,  without  the 
consent  of  the  plaintiff,  for  the  consideration  (as  the  circuit  court 
found)  of  $475. 

The  only  question  in  this  case  is :  Did  the  release  of  Cook  also  re- 
.  lease  the  defendant,  his  surety?  The  general  rule  undoubtedly  is 
that  the  release  of  the  principal  debtor,  without  the  consent  of  the 
surety,  releases  the  surety.  But  if  the  surety  is  fully  indemnified 
J  against  loss  by  reason  of  having  become  such,  a  release  of  the 
principal  without  payment  of  the  debt  does  not  release  the  surety. 
This  is  the  rule  laid  down  in  Fay  v.  Tower,  58  Wis.  286,  as  ap- 
plied to  a  case  in  which  an  unauthorized  extension  of  credit  had 
been  given  to  the  principal.  Manifestly  the  same  rule  should  be 
applied  where  the  surety  is  absolutely  released  from  the  debt.  The 
rule  is  founded  upon  a  very  plain  principle  of  justice.  To  illus- 
trate :  A  becomes  security  for  g.  to  C  for  the  payment  of  $1,000. 
B  puts  property  into  the  hands  of  A  worth  $1,000,  to  indemnify 
him  against  loss  because  of  the  obligation  thus  assumed  by  him. 
C  releases  B,  the  principal  debtor,  from  all  liability  on  account  of 
the  debt,  but  receives  no  payment  thereon.  A,  the  surety,  then 
sells  the  pledged  property  for  $1,000  and  retains  the  proceeds.  It 
is  entirely  reasonable  and  just  that,  notwithstanding  the  release  of 
the  principal  debtor,  C  should  have  his  remedy  against  the  surety 
for  the  amount  realized  by  him  in  the  sale  of  the  pledged  property. 
Such,  we  think,  is  the  law.  It  seems  to  us  that  we  have  here  just 
such  a  case. 

By  the  court — The  judgment  of  the  circuit  court  is  affirmed. 


Accord :    Moore  v.  Paine,  12  Wend.  123. 


n 


1 


At  i>o  ' 


a   \ 


" 


■ 

DISCHARGE    OF    PRINCIPAL    DEBTOR  497 


-VU>    |Jl'-'v\    . 


AMES  v.  MACLAY  ET  AL. 


14 /two  281  (1862).  ^f}] 

Complainant  and  others  were  the  sureties  upon  the  bond  of  one 
McDonald,  who  was  elected  sheriff  of  Clinton  county  in  1851.  For 
an  alleged  nonfeasance,  Maclay  sued  on  this  bond  in  1854.  The 
principal  and  his  sureties  severed  in  their  defenses.  A  demurrer  of 
the  sureties  in  that  action  to  the  reply  of  the  plaintiff  was  over-  ■ 
ruled,  and  judgment  was  rendered  against  them.  On  the  trial  of 
the  issues  between  Maclay  and  the  sheriff,  the  latter  succeeded.^ 
A  motion  was  made  by  the  sureties  to  set  aside  the  judgment 
against  them,  which,  as  far  as  shown  by  the  record,  was  not  de- 
termined. Complainant  now  brings  this  bill  to  set  aside  said  judg- 
ment. The  cause  was  referred  to  a  master,  who  recommended  that 
the  bill  should  be  dismissed.  This  report  was  confirmed,  and  com- 
plainant appeals. 

Wright,  J. :  The  judgment  upon  demurrer  against  the  sureties 
was  rendered  on  the  4th  of  March,  1848.  The  verdict  and  judg- 
ment in  favor  of  McDonald,  the  principal,  was  on  the  5th  of  the 
month. 

Respondents  resist  the  relief  asked,  upon  the  ground  that  there 
was  neither  accident,  mistake,  misrepresentation,  nor  fraud,  and 
that  chancery  has  no  jurisdiction,  although  the  party  has  lost  his 
remedy  at  law  through  ignorance  of  a  fact  which  he  might  have 
learned  with  due  diligence  and  inquiry,  or  by  bill  of  discovery. 
Penny  v.  Martin,  4  John.  Ch.  566.  Or,  the  same  principle  may 
be  stated  as  in  Ballance  v.  Loomis,  22  Ills.  82,  that  if  a  party  seeks 
to  set  aside  a  judgment  by  proceeding  in  chancery,  he  must  show  ~ 
himself  clear  of  all  laches,  and  also  that  every  effort  was  made 
to  prevent  a  judgment  against  him.  Or,  still  again,  as  in  Kreich-  • 
baum  v.  Bridges  &  Powers,  1  Iowa  14,  following  Story's  Eq.  Jur., 
887,  that,  to  authorize  relief  against  a  judgment,  it  must  appear' 
that  it  is  against  conscience  to  execute  it,  and  also  that  the  injured 
party  could  not  have  availed  himself  of  the  main  facts,  at  or  be- 
fore the  trial,  and  that  there  was  no  fault  or  negligence  on  his 
part.   And  see  Houston  v.  Wolcott,  7  Iowa  173. 

Complainant  does  not  controvert  these  principles,  but  places  his 
case  upon  the  ground  that  as  the  principal,  McDonald,  by  the  ver- 
dict and  judgment  was  discharged  from  his  liability,  the  sureties 
are,  in  equity,  discharged.  And  this  proposition  he  bases  upon  the 
doctrine  that  the  rights  of  the  surety,  and  his  relation  to  his  prin- 
cipal, are  the  same  after  as  before  judgment,  and  that  when  from 
any  cause  the  principal  ceases  to  be  bound,  the  liability  of  the  surety 
should  likewise  cease.  Or,  following  Jackson  v.  Griswold,  4  Hill 
32— De  Witt. 


498 


SURETYSHIP    DEFENSES 


529,  the  argument  is  this :  that  a  decision  against  the  debt  discharges 
the  surety.  And  this,  not  upon  the  ground  that  he  is  a  party  to 
such  decision,  but  because  the  judgment  extinguishes  the  debt ;  and 
the  principal  thing  being  thus  destroyed,  the  incident  (the  obliga- 
tion of  the  surety)  is  destroyed  with  it.  The  effect  is  the  same  as 
a  release  by  the  creditor,  or  a  payment  by  the  debtor,  who  may 
do  any  act  in  discharge  of  his  surety,  but  nothing  by  which  he  shall 
be  concluded  beyond  his  original  objection. 

As  favoring  these  views,  complainant  cites  a  number  of  cases, 
to  the  effect  that  if  the  creditor,  after  judgment,  shall  disable  him- 
self from  collecting  his  debt  from  his  principal  debtor,  he  is  held 
to  have  exonerated  the  surety  also.  Of  this  class  is  Hubbell  v. 
Carpenter,  5  Barb.  520,  where  the  creditor  after  judgment  gave 
the  maker  of  the  note  an  obligation  not  to  collect  the  same  against 
him,  but  reserved  the  right  to  enforce  it  against  the  indorser. 
So,  in  The  Manufacturers'  and  Mechanics'  Bank  v.  The  Bank  of 
Pennsylvania,  9  Watts  &  Serg.  335,  where  the  creditor  after  judg- 
ment entered  into  an  agreement  with  the  maker  of  the  note  to  stay 
proceedings  against  him.  And  substantially  to  the  same  effect  is 
Storms  v.  Thorn,  3  Barb.  314,  and  the  other  authorities  cited.  We 
are  not  inclined,  however,  to  give  these  cases  weight,  as  applied  to 
this  case.  To  make  them  applicable  we  must  first  assume  that  the 
judgment  in  favor  of  the  sheriff  was  the  act  of  the  creditor,  after 
judgment  against  the  sureties,  in  the  same  sense  and  to  the  same  ef- 
fect as  the  stipulation  to  give  time  to  the  principal  debtor,  or  an 
agreement  to  release  him.  The  reasoning  which  upholds  this  prop- 
osition is  not  tenable.    If  the  judgment  in  favor  of  McDonald  in 

j  equity  discharges  the  sureties  from  their  liability,  it  must  be  not  be- 
cause  it  was  the  agreement  or  act  of  Maclay,  but  because  it  being 
determined  that  the  principal  is  not  liable,  the  incidental  liability, 
that  of  the  sureties,  likewise  ceases. 

Chitty,  in  his  work  on  Contracts,  460,  quoting  from  Pothier,  says 

'\ that :  "It  results  from  a  definition  of  a  )surety^s_engagement  as 
being  accessory  to  a  principal  obligation,  tnaTThlf^xtinctiori_oi  the 


.principal  obligation  necessarily  induces  that  of  the  surHyTit  being 
of  the  nature  of  an  accessory  obligation  that  it  can  not  exist  with- 
out its  principal:  therefore,  whenever  the  principal  IT  discharged  in 
whatever  manner  it  may  be,  not  only  by  actual  payment  or  a  com- 
pensation, but  also  by  a  release,  the  surety  is  discharged  likewise; 
/(^orjthe  essence  of  the' obligation  being  that  the  surety  is  only  obliged 
•  on  behalf  of  a  principal  debtor,  he  is  therefore  no  longer  obliged 
/  when  there  is  no  longer  any  principal   for  whom  he  is   obliged."" 
^his  rule  comports  with  the  duties  and  relations  of  the  surety  to 
the    principal,    accords    with    reason    and    good    conscience,    and 
is  fully  recognized  by  the  authorities.    Is  there,  then,  in  this  case, 
any  technical  or  stern  rule  of  the  law  to  prevent  its  application? 
We  conclude  not,  and  that  we  can  do  what  right  reason  and  good 


DISCHARGE    OF    PRTXCITAL   DEBTOR  499 

conscience  dictate,  without  running  counter  to  the  rule  which  re- 
quires diligence  from  suitors  in  all  courts,  or  the  equivalent  prin- 
ciple that  a  party  who  applies  for  relief  against  a  judgment  at  law 
must  show  injustice,  and  that  he  has  been  without  fault  or  negli- 
gence. 

/      What  are  the  facts  of  this  case?    McDonald,  the  sheriff,  was  the 
'   principal,    and    of    course    primarily    and    principally    liable     for  y     -^^~Z 
the  alleged  nonfeasance.    lie,  after  a  full  and   fair  trial,  has~beenj 
entirely  and  absolutely  released  from  his  liability.    In  other  words, 
it  has  been  authoritatively  determined  by  the  judgment  of  a  com- 
petent tribunal  that  the  alleged  nonfeasance  was  not  established, 
and  that  plaintiff   (one  of  the  present  respondents)   had  no  cause 
of  action.   By  this  adjudication  the  principal  "is  no  longer  obliged," 
or  obligated,  so  far  as  the  claim  of   Maclay  is  concerned.    Now, 
does  it  accord  with  the  alphabet  principles  governing  the  relation 
of  principal  and  surety  that  the  latter  shall  be  obliged  to  pay  that 
for  which  the  former  is  no  longer  liable?    Or  rather,  is  it  not  con- 
sistent with  every  rule  governing  the  relation  that,  as  the  condition  \ 
of  the  surety  as  to  be  favored,  he  should  not  he  required  to  pay  a^>  ,l(  .  r 
debt  whichjie  can  never  recover  from  his  principal,  the  principal 
orjhgation  having  been  extinguished  ? 

"But  it  is  suggested  that  this  view  loses  sight  of  the  fact  that 
the  sureties  severed  in  their  pleas,  and  that  they  were  guilty  of 
negligence  in  not  relying  upon  the  same  defense  as  that  made  by 
their  principal.  We  are  not  unmindful  of  the  at  least  apparent 
strength  of  the  argument.  It  is  to  be  remembered,  however,  that  *P 
judgment  was  rendered  against  the  sureties  before  the  issues  were  ' 
tried  between  their  principal  and  the  creditor.  It  was,  therefore, 
practically  impossible  for  them  to  rely  upon  such  subsequent  adjudi- 
cation as  a  protection  to  themselves.  And  then  suppose  they  had' 
plead  the  same  defense,  and  the  result  had  been  the  same  as  it  was. 
Would  this  have  been  such  diligence  as  to  obviate  the  effect  of  the 
rule  for  which  respondents  insist?  If  it  would,  we  confess  that 
we  can  not  see  how  they  should  be  placed  in  any  worse  position 
by  having  mistaken  their  proper  legal  defense. 

But  the  argument  that  the  sureties  are  concluded  and  forever 
estopped  from  resisting  the  judgment  against  them  by  their  fail-  / o 
ure  to  present  their  proper  defense  is  radically  defective  in  that 
it  ignores  the  great  general  principles  at  the  foundation  of  their 
liability,  and  continues  the  accessory  obligation  after  that  which 
induced  it  has  been  completely  extinguished.  We  would  not  say  that 
if  the  principal  had  been  discharged  before,  and  the  sureties  had 
failed  to  rely  upon  that  fact  as  a  legal  defense,  they  could  be  after- 
wards heard  in  equity.  That  case  is  not  before  us.  They  could  not 
avail  themselves  of  a  defense  which  did  not  exist.  JTheir  failure 
to  nKike_the  same  defense  as  their  principal  should  nof,  in  equity, 
conclude  them  to  the  extent  of  compelling  the  payment  of  money 


JU-^ 


500 


SURETYSHIP    DEFENSES 


for  their  principal,  for  which  it  is  conclusively  and  finally  settled 
he  was  never  liable,  i  Indeed,  under  such  circumstances,  we  do  not 
believe  that  a  case  can  be  found  sustaining  such  liability. 

We  give  no  weight  to  the  fact  that  a  motion  was  made  to  set 
aside  the  judgment.  No  action  was  ever  taken  upon  it.  Complain- 
ant might,  therefore,  resort  to  his  concurrent  equitable  remedy. 
This  he  has  done.   The  decree  is 

Reversed. 


0J"VvA4 

SAMUEL  T.  KNAPP  ET  AL.,  RESPONDENTS,  v.  ORIEN  B. 
ANDERSON  ET  AL.,  APPELLANTS  / 

71  N.  Y.  466  (1877). 

Appeal  from  judgment  of  the  general  term  of  the  Supreme 
Court,  in  the  first  judicial  department,  affirming  a  judgment  in 
favor  of  plaintiffs,  entered  upon  an  order  sustaining  a  demurrer  to 
defendants'  answer  herein. 

This  action  was  brought  against  defendants  as  sureties  upon  an  A 
undertaking  upon  appeal   from  a  judgment  in   favor  of  plaintiffs 
against  one  Henry  S.  Leszynsky.  \ 

The  undertaking  was  that  appellant  would  pay  all  costs  and  dam- 
ages awarded  against  him  on  appeal,  not  exceedrnw__^50il;  Imcim 
case  the  judgment  appealed  from  was  affirmed  in  whole  or  in  part, 
or  the  appeal  dismissed,  that  he  would  pay  the  amount  directed  to 
be  paid.  The  defendants  set  up  in  their  answer  a  discharge  of  the 
judgment  debtor  in  bankruptcy,  after  the  rendition  of  the  judgment 
and  pending  the  appeal.  Plaintiffs  demurred  on  the  ground  that 
.  the  answer  did  not  state  facts  constituting  a  defense. 

Allen,  J. :  The  defendants  did  not.  by  their  undertaking,  be- 
come liable  for  the  debt  of  their  principal,  but  their  obligation  was 
contingent  and  incident  to  the  legal  proceedings  for  the  payment 
of  the  judgment  that  might  be  rendered  upon  the  appeal.  It  did 
not  become  a  debt  until  the  happening  of  the  contingency  named, 
and  is  not,  therefore,  within  the  saving  provisions  of  §  33  of  trie 
United  States  Bankrupt  Act  of  1867.  That  section  only  applies  to 
sureties  liable  for  the  debts  of  the  bankrupt  existing  before,  and 
which  would  be  discharged  by  the  bankrupt  proceedings.  (Carpen- 
ter v.  Turrell,  100  Mass.  450;  Odell  v.  Wootten.  38  Gen.  224.) 

The  defendants'  liability  rests  upon  the  terms  of  their  undertak- 
ing, rather  than  the  clause  of  the  bankrupt  act  referred  to.  which 
only  has  respect  to  those  liable  for  the  same  debt,  for  or  with  the 
bankrupt,  "either  as  partner,  joint  contractor,  indorser,  surety  or 
otherwise." 

The  whole  tenor  of  the  act  shows  that  this  was  designed  to  in 


f 


/ 


DISCHARGE    OF    PRINCIPAL    DEBTOR  jUl 


elude  only  such  debts  as  were  provable  against  the  bankrupt  under 
the  act.    The  defendants  undertook,  for  the  payment  of  all  costs    . 
that  might  be  awarded  against  Leszynsky,  their  principal,  the  ap- 
pellant in  the  action  on  the  appeal  and  the  judgment  appealed  from,  /. 
in  case  the  same  should  be  affirmed  or  the  appeal  should  be  dis- 
missed.  This  was  in  compliance  with  the  statute  (Code,  334,  335), 
and  stayed  all  proceedings  in  execution  of  the  judgment.    The  ob- 
ligation became  operative,  andgheir  liability  fixed  by  .the  final  iudg-L*- 
ment  of  the  appellate  court,  affirming  the  judgment  appealed   from 
and  awarding  costs  against  the  appellant. 

The  discharge  of  the  appellant  in  bankruptcy,  pending  the  appeal, 
did  not  release  the  sureties  upon  the  appeal  from  their  liability. 
The  discharge  did  not  affect  the  appeal  or  stay  proceedings  upon 
it,  or  prevent  a  judgment  therein.  (Cornell  v.  Dakin,  38  N.  Y. 
253.)  If  the  appellant  could  have  availed  himself  of  his  discharge 
'to  prevent  a  judgment  and  terminate  the  appeal  and  the  action  be- 
fore judgment,  or  a  dismissal  of  the  appeal,  the  sureties  would  have 
been  released,  for  the  very  obvious  reason  that  the  contingency  upon 
which  their  liability  was  to  be  made  operative  could  not  arise. 
(Carpenter  v.  Turrell;  Cornell  v.  Dakin,  supra;  Poppenhousen  v.  . 
Seely,  3  Abb.  Ct.  of  App.  Dec.  615 ;  Odell  v.  Wootten,  supra ;  Payne 
v.  Able,  7  Bush.  (Ky.)  344;  S.  C,  4  Bank  Reg.  220.) 

■Bail  to  the  action  may  be  released  on  motion  if  their  principal 
is  discharged  from  his  debts  before  their  liability  is  fixed  as  bail, 
for  the  reason  that  they  may  at  any  time  surrender  their  prin- 
cipal, and  as  upon  his  surrender  he  would  be  entitled  to  his  imme- 
diate discharge,  to  avoid  circuity,  courts  release  bail  without  the  ; 
formality  of  a  surrender.  But  after  their  liability  has  become  fixed, 
it  is  not  released  by  the  discharge  of  their  principal. 

Bail,  in  error  or  surety  in  an  undertaking  upon  appeal,  for  the 
performance  of  the  judgment  that  may  be  given  by  the  appellant 
court,  are  not  released  from  their  obligation  by  the  discharge  in 
bankruptcy  of  their  principal,  pending  the  appeal,  unless  the  dis- 
charge may  be  interposed  to  prevent  judgment.  (Hall  v.  Fowler, 
6  Hill  630;  Flagg  v.  Taylor,  6  Mass.  34;  Burr  v.  Carr,  7  Bing. 
508;  Southcote  v.  Braithwaite,  1  T.  R.  624.) 

Upon  final  judgment  by  the  appellate  court,  the  contingency  arises 
upon  which,  by  the  terms  of  their  contract  imposed  by  the  statute 
as  a  condition  of  a  stay  of  execution  upon  the  judgment  appealed 
from,  their  liability  was  to  become  absolute.  To  hold  that  they 
were  released  by  the  insolvency  of  the  appellant  pending  the  appeal 
would  add  another  condition  to  the  undertaking,  not  expressed  in 
it  or  authorized  by  statute.  Such  a  condition,  inserted  in  the  un- 
dertaking when  given,  would  invalidate  it,  as  not  in  conformity  to 
the  statute.  It  would  also  be  a  hardship  on  the  respondent  in  the 
appeal,  as  he,  instead  of  the  sureties,  would  be  compelled  to  take 


502  SURETYSHIP    DEFENSES 

the  risk  of  the  continued  solvency  and  ability  to  pay  of  the  prin- 
cipal, while  by  the  stay,  to  indemnify  against  which  the  undertaking 
of  the  surety  is  given,  he  is  deprived  of  the  opportunity  of  enforc- 
ing his  judgment. 

The  judgment  must  be  affirmed. 

All  concur. 

Judgment  affirmed. 


GUY  WITTHAUS,  RESPONDENT,  v.  JACOB  A.  ZIMMER- 
MAN, APPELLANT  ' 

9  App.  Div.  (N.  Y.)  202,  86  N.  Y.  S.  315,  14  N.  Y.  Ann.  Cos.  379  (1904). 

McLaughlin,  J.:  On  the  13th  of  December,  1901,  one  Simon 
leased  to  the  firm  of  Johnson  &  Anderson  certain  premises  in  the 
city  of  New  York  for  a  term  of  three  years,  at  an  annual  rental_oi- 
$4,000,  payable  in  equal  monthly  instalments  in  advance.  On  the 
twenty-eighth  of  May  following  the  plaintiff  purchased  the  prem- 
ises from  Simon,  subject  to  the  lease,  and  in  connection  with  the 
purchase  of  the  defendant  Zimmerman  guaranteed  the  payment  of 
the  rent  reserved,  by  an  instrument,  of  which  the  following  is  a 
copy: 

"In  consideration  of  the  sum  of  one  dollar,  the  receipt  whereof  is 
hereby  acknowledged,  I  hereby  guarantee  the  prompt  payment  of 
the  rent  reserved  in  the  within  lease  executed  between  Emil  Simon 
and  the  firm  of  Johnson  &  Anderson. 

"Dated,  New  York,  May  28,  1902. 

"Jacob  A.  Zimmerman  (L.  S.)" 

Johnson  &  Anderson  occupied  the  premises  from  the  date  of  the 
lease  to  and  including  the  month  of  October,   1902,  and  paid  the 
rent  reserved  during  that  time.    On  the  29th  of  October,  1902,  they 
were  adjudged  involuntary  bankrupts  in  the  United  States  District 
Court  for  the  southern  district  of  New  York  and  the  rent  for  No- 
vember, 1902,  thereafter  accruing,  and  not  being  paid,  this  action 
was  brought  to  collect  the  same  from  the  defendant  under  his  guar- 
anty.    The  plaintiff  had  a  judgment  in  the  municipal  court,  which 
was  affirmed  by  the  appellate  term  from  which,  by  its  permission, 
the  defendant  has  appealed  to  this  court. 
^~  The  appellant  contends  that  the  adjudication  in  bankruptcy   of   \ 
Johnson  &  Anderson  terminated  the  relation  of  landlord  and  tenant 
between  them  and  the  plaintiff,  and,  therefore,  there   was  no   rem 
due  the  plaintiff  for  the  month  of  November,  for  which  defendant'    \ 
/  could  be  held  liable.     In  support  of  this  contention  our  attention       1 
-  is  called  to  several  authorities  in  the  federal  court,  some  of  which, 
at  least,  sustain  it. 


DISCHARGE    OF    PRINCIPAL   DEBTOR  503 

Thus,  in  Matter  of  Jefferson  (93  Fed  948).  Evans,  D.  J.,  re- 
viewing a  similar  question,  said :  "The  court  sees  no  way  to  avoid 
the  conclusion  that  the  relation  of  landlord  and  tenant  in  all  such 
cases  ceases,  and  must  of  necessity  cease,  when  the  adjudication  is 
made.  If  the  relation  does  cease  the  landlord  afterward  has  no  yH 
tenant  and  the  tenant  has  no  landlord.  *  *  *  After  the  adju-  I 
dication  there  is  no  obligation  on  the  part  of  the  tenant  growing 
out  of  the  lease.  *  *  *  No  obligation  upon  his  part  to  pay 
rent  can  arise  when  he  can  neither  use  nor  occupy  the  property/'. 

In  Bray  v.  Cobb  (3  Am.  Bank.  788),  Purnell,  D.  J.,  said:    "The  £ 
relation  of  landlord  and  tenant  are  severed  bv  operation  of   the  <J 
Bankrupt  lajv.     The  trustee  of  his  estate  may,  after  adjudication,    I 
occupy  and  use  the  rented  or  leased  premises   for  the  estate,  but 
under  such  circumstances,  it  would  be  chargeable  to  the  estate,  not- 
as  rent  under  bankrupt's  contract,  but  as  cost  and  expenses  of  ad- 
ministering the  same." 

And  in  Matter  of  Hinckel  Brewing  Co.  (10  Am.  Bank.  484),  Ray, 
D.  J.,  said :  "The  lease  is  terminated  by  an  adjudication  in  any 
event." 

But  our  attention  is  also  called  to  several  authorities  in  the  same 
courts  holding  an  opposite  view.  Thus  in  Matter  of  Ells  (98  Fed. 
967),  Lowell,  J.,  said:  "Flad  there  been  no  clause  giving  the  lessor 
the  right  to  re-enter,  the  trustee  in  bankruptcy  would  have  had  a 
reasonable  time  to  elect  whether  to  assume  or  to  refuse  the  lease. 
If  he  had  assumed  it,  the  bankruptcy  would  have  operated  like  any 
other  assignment,  and  would  have  released  the  bankrupt  from  all 
liability,  except  upon  those  of  his  covenants  not  already  broken, 
which  would  have  remained  binding  upon  him  after  any  other  as- 
signment. If  the  trustee  had  refused  to  take  the  lease,  the  bank- 
rupt  would  have  remained  tenant  as  before."  Then,  referring  to 
Matter  of  Jefferson  (supra)  in  which  an  opposite  view  was  ex- 
pressed, he  said :  "With  all  respect  for  the  learned  judge,  I  must 
think  the  above  remarks  made  somewhat  hastily,  unless  they  are  to 
be  taken  as  limited  to  the  particular  lease  in  question,  or  made  to 
depend  upon  some  peculiar  provision  of  the  statutes  of  Kentucky. 
*  *  *  It  follows,  then,  that  the  lease  here  in  question  was  not 
/  determined  by  the  bankruptcy  of  the  lessee,  but  only  by  the  re- 
(    entry  of  the  lessor." 

And  in  Matter  of  Mitchell  (8  Am.  Bank.  324)  Bradford,  D.  J., 
said :  "Reference  was  made  *  *  *  to  the  case  of  In  re  Jef- 
ferson. *  *  *  I  am  by  no  means  satisfied  with  the  reasoning 
contained  in  the  opinion  in  that  case."  (See,  also,  Matter  of  Col- 
lignon,  4  Am.  Bank.  250.)  In  addition  to  these  authorities  in  the 
federal  courts  there  are  two  at  least  in  the  state  courts  to  the  same 
effect — White  v.  Griffing  (44  Conn.  437)  and  Bernhardt  v.  Curtis 
(109  La.  171).  In  both  of  these  cases  a  recovery  of  rent  in  a  lease 
was  sought  against  a  guarantor.     In  the  former  it  was  held  that  if 


504  SURETYSHIP    DEFENSES 

the  trustee  did  not  accept  the  assignment  of  the  leasehold  estate  of 
the  bankrupt  the  lease  remained  the  property  of  the  bankrupt  and, 
consequently,  the  guarantor  remained  liable ;  and  in  the  latter  that 
the  adjudication  in  bankruptcy  did  not  terminate  the  lease  nor  re- 
lieve the  guarantor  from  his  liability. 

It  is  thus  seen  that  there  is  a  diversity  of  opinion  as  to  the  effect . 
of  an  adjudication  in  bankruptcy  upon  a  lease.     Nevertheless,  the 
weight  of  authority,  as  well  as  reason,  we  think  sustains  the  conten- 


/  tion  that  | a  discharge  in  bankruptcy  does  not  terminate  a  lease  or 


change  the  legal  relation  of  landlord  and  tenant  'Sinless,"  as  stated 

in  JtSrandenburg  on  Bankruptcy   (3d  ed.   1171),  "the  landlord   re-,. 

enters  or  the  trustee  assumes  the  lease,  in  which  event  the  adjudi- 

L cation  operates  like  any  other  assignment  and  all  liability  of  the 
tenant  ceases."  i 

In  Parsons  on  Contracts  (Vol.  3  (9th  ed.),  *489)  the  same  view 
is  expressed,  in  which  it  is  said :  "If  the  assignee  elects  not  to 
take,  the  lease  remains  in  the  bankrupt  with  all  its  advantages  and 
all  its  burdens  and  free  from  all  claims  or  right  either  of  the  as- 
signee or  of  the  creditors." 

I  am  also  of  the  opinion  that,  even  though  it  be  held  that  the 
lease,  by  the  adjudication,  was  so  far  terminated  as  to  release  the 
tenant  from  thereafter  paying  rent,  this  did  not  of  itself  effect  the 
defendant's  guaranty  or  relieve  him  from  liability  thereunder.  Sec- 
tion 16  of  the  bankruptcy  law  (30  U.  S.  Stat,  at  Large  550)  pro- 
,  ,  vides  that  "the  liability  of  a  person  who  is  a  codebtor  with  or  guar- 
antor or  in  any  manner  a  surety  for  a  bankrupt,  shall  not  be  al- 
tered by  the  discharge  of  such  bankrupt."  This  language  seems  to 
negative  the  idea  that  the  adjudication  had  any  effect  upon  the  de- 
fendant. Not  only  this,  but  to  hold  otherwise  would  destroy  the 
benefit  sought  to  be  accomplished  by  the  guaranty,  which  was  the 
payment  of  the  rent  reversed  if  the  tenant  did  not  choose  to,  or  by 
reason  of  insolvency  could  not,  pay.  The  plaintiff  took  no  part  in 
the  bankruptcy  proceeding,  and  I  am  unable  to  see  upon  what  prin- 
ciple of  law  a  binding  contract  can  be  destroyed  by  an  act  of  a  third 
party  in  which  a  party  to  the  contract  did  not  participate  and  over 
whom  he  had  no  control.  . 

Our  conclusion,  therefore,  is  that  |the  lease  was  not  terminated 

/~by  the  adjudication  in  bankruptcy,  and  as  it  does  not  appear  that 

the  trustee  has  taken  possession   under  authority  of   the   act,   the    ; 

tenant  still  remains  liable  for  the  payment  of  the  rent,  and  that  in 

]  any  event  the  defendant  under  his  guaranty  is  liable  therefor  in 

1  case  of  its  nonpayment. 

V_    It   follows  that  the  judgment  appealed   from  must  be  affirmed, 
with  costs. 

Van  Brunt,  P.  J.,  Ingraham,  Hatch  and  Laughlin,  J  J.,  concurred. 
Judgment  affirmed,  with  costs. 


DISCHARGE    OF    PRINCIPAL    DEBTOR  505 


lRION 

79  Miss.  253,  30  So.  651  (1901). 


GOYER  COMPANY  v.  MARION  B.  JONES, 


Terral,  J.,  delivered  the  opinion  of  the  court. 

The  Goyer  Company,  in  a  justice  of  the  peace  court,  sued  M.  IL. 
Joiies^gon^an^^ccpunt  rendered  for  $159.23,  and  had  judgment. 
SaldnvLBTjlJnes  appealed  this  cause  to  the  circuit  court,  and  gave 
an  appeal  bond,  with  R.  A.  Jones  as  surety,  conditioned  "to  pay 
such  judgment  as  said  circuit  court  may  render  against  said  M.  B. 
Jones."  More  than  four  months  after  the  execution  of  said  appeal  I 
bond,  an  involuntary  petition  of  bankruptcy  was  filed  against  said 
M.  B.  Joins,  upon  which  he  was  adjudicated  a  bankrupt  and  re- 
ceived hjs_discharge.  Afterward  when  said  cause  came  on  to  be 
tried  in  the  circuit  court,  where  the  Goyer  Company  had  obtained 
leave  of  the  bankrupt  court  to  prosecute  it  to  judgment,  M.  B. 
Jones  pleaded  his  discharge  in  bankruptcy,  and  the  cause  was  sub-  ex 
nTrtreri~trj-the  circuit  judge,  without  jury,  and  he  gave  verdict  and  ^ 
judgment  for  defendant  The  appellant  insists  that,  as  section  16  of 
the  bankrupt  law  preserves  the  liability  of  any  person  who  is  in  any 
manner  a  surety  of  a  bankrupt,  he  should  have  been  permitted  to 
take  a  judgment  in  the  circuit  court  on  the  appeal  bond  against 
both  M.  B.  and  R.  A.  Jones,  with  a  view  of  having  the  execution  of 
said  judgment  stayed  perpetually  as  to  M.  B.  Jones,  and  for  the 
sole  purpose  of  enforcing  the  judgment  as  to  R.  A.  Jones.  The 
bond  stipulates  only  for  the  payment  of  such  judgment  as  may  be 


rendered  in  the  circuit  court  against  M.  B.  Jones;  in  effect,  it  stip- 
ulates only  to  pay  such  valid  judgment  as  the  circuit  court  may 
render  against  M.  B.  Jones,  and,  as  no  valid  judgment,  under  his 
plea  of  discharge  in  bankruptcy,  could  ever  be   rendered  against 
him,  the  liability  of  the  surety,  R.  A.  Jones,  is  also  determined, , 
because  the  contingency  upon  which  his  liability  depended  can  never 
happen.     In  Wolf  v.  Stix,  99  U.  S.  1    (25  L.  ed.  309),  is  said:^ 
"The  cases  are  numerous  in  which  it  has  been  held,  and,  we  believe, 
correctly,  that,  •  if  one  is  bound  as  surety  for  another  to  pay  any  ^ 
judgment  that  fffay  be  rendered  in  a  specified  action,  if  the  judg- 
ment is  defeated  by  the  bankruptcy  of  the  person   for  whom  the 
obligation"  is  assumed,  the   surety  will  be   released.      The   obvious 
TeasorTTs  that  the  event  has  not  happened  on  which  the  liability  of 
the  surety  was  to  depend.    Of  this  class  of  obligations  are  the  ordi- 
nary bonds  in  attachment  suits,  to  dissolve  an  attachment,  appeal 
bonds  and  the  like."    This  view  of  the  law  is  supported  by  Collier. 
Coll.  Bankr.  (3d  ed.),  180-184. 
Affirmed. 


SURETYSHIP   DEFENSES 


SECTION  9.    RELEASE  OF  SECURITIES  HELD  BY 
CREDITOR 

PEARL  v.  DEACON 

24  Bcav.  186  (1857). 

The  Master  of  the  Rolls. 

The  facts  are  shortly  these:  Mr,  Pearson  applied  to  the  defend- 
ants, who  are  brewers  at  Windsor,  for  a  loan  of  £250,  to  enable 
him  to  take  a  public-house,  called  The  Carpenters'  Arms.  They 
said  \ve  will  do  so  if  you  will  get  a  good  surety  for  the  amount, 
and  assign  over  your  pension  and  furniture.  That  was  agreed  to ; 
Pearson  offered  the  plaintiff  as  his  surety  for  half  of  the  amount, 
and  Castles  as  surety  for  the  other  half ;  the  defendants  accepted 
them,  and  on  the  16th  of  November,  1852,  two  joint  and  several 
promissory  notes   were  given  to  the  defendants,   one  by  Pearson 

'  and  the  plaintiff,  the  other  by  Pearson  and  Castles.  Six  days  after- 
ward, viz.,  on  the  23rd  of  November,  Pearson  assigned  his  pension 
and  all  the  goods  and  chattels  to  secure  this  debt  of  £250.  On  this 
transaction,  the  first  point  which  was  raised  by  the  plaintiff,  in  my 
opinion,  fails.  He  says  that  this  arrangement  was  a  variation  of 
the  contract  of  suretyship,  and  that  it  discharged  the  plaintiff,  be- 
cause the  money  was  made  payable  on  the  16th  of  November,  1858, 
or  six  years  after  the  date  of  the  mortgage.  If  the  case  had  rested 
here,  the  plaintiff  would  probably  have  been  successful,  but  the 
deed  goes  on,  "or  at  such  earlier  or  other  time"  as  the  defendants 
should  appoint  for  the  payment  thereof  "in  and  by  a  notice  in  writ- 
ing." I  do  not  think  that  this  was  a  variation  in  the  terms  of  the 
security  as  to  discharge  the  surety ;  but  the  question  is  of  little  im- 
portance,  as  I  am  of  opinion,  on  the  evidence,  that  the  plaintiff  had 
notice  of  this  assignment  and  of  the  terms  of  it. 

The  only  other  facts  important  to  be  stated  are  these :    The  de- 
fendants were  landlords  of  The  Carpenters'  Arms,  and  in  the  year 
.  1856.   four  years  after  this  transaction,  Pearson's  rent  being  con- 
siderably in  arrear,  the  defendants  restrained  and  put  a  broker  in 

"■  possession  of  the  furniture  under  the  distress;  on  this,  by  arrange- 
ment, instead  of  selling  the  goods,  they  took  them  at  a  valuation  for 

1  £116. 

The  question  is  this :  The  furniture  having  been  expressly  mort- 
gaged for  the  £250,  was  it  within  the  power  of  the  defendants,  to 
the  injury  of  the  surety,  to  give  up  the  security  on  the  furniture 
for  the  £250  and  take  it  in  discharge  of  another  and  different  debt 
due  themselves  ?  L 

I  am  of  opinion  that  they  could  not  do  so.  It  was  said,  that  this 
security  was  not  within  the  scope  of  the  plaintiff's  contract,  and  that 


# 


RELEASE    OF    SECURITIES 


a  surety  can  not  go  beyond  it.    This  is  a  mistake  with  regard  to  the    t 
relation  between  a  principal  and  a  surety.     Lord  Eldon  expressly 
stated,  in  Craythorne  v.  Swinburne,   14  Vesey  164,  169,  that  the 
rights  of  a  surety  depend  rather  on  a  principle  of  equity  than  upon 
contract;  there  may  be  a  quasi  contract,  but  it  arises  out  of  the 
equitable   relation   between   the   parties,    to   be   inferred    from   the 
knowledge  of  an  established  principle  of  equity.     The  same  doc- 
\j^y-  trine  is  also  stated  in  Mayhew  v.  Crickett,  2  Swan.  191,  and  it  is 
laid  down  distinctly,  that  sureties  are  entitled  to  the  benefit  of  every 
;ecurity  which  the  creditor  has  against  the  principal  debtor,  anjtl  j 
haT^h^tlTeTThe  surety  knows  of  the  existence  of  those  securities 
ir^noFls  immaterial,     if  the  creditor  makes  available  any  of  his 
.ecTrrTties,  the  surety  is  entitled  to  the  benefit  of  it. 

The  case  of  Capel  v.  Butler,  2  Sim.  &  S.  457,  is  a  distinct  author- 
ity for  this  proposition.  Mr.  Ellis  sought  to  distinguish  that  case 
by  saying  that,  in  that  case,  there  was  a  recital  of  all  the  securities,  ' 
but  that  here  there  was  none.  The  answer,  however,  is  this :  That 
there  was  no  notice  to  the  surety  of  the  whole  transaction,  and 
being  so,  the  reciting  it  is  immaterial.  Lord  Eldon  distinctly  laid 
down,  in  Mayhew  v.  Crickett,  2  Swan.  185,  that  it  is  a  matter  of 
perfect  indifference,  whether  the  surety  is  aware  of  another  security 
having  been  taken  by  the  creditor  or  not. 

In  the  judgment  of  Vice-Chancellor  Wood  in  Newton  v.  Charl- 
ton, 10  Hare  651,  there  is  a  statement,  in  every  word  of  which  I 
concur.  He  says,  as  regards  the  jcrediior,  "He  is  hnnnd  +r>  giirp  tn~l  sq, 
the  surety  the  benefit  of  every  security  which  he  then  holds ;  and  her" 
is  not  allowed,  in  any  way,  to  vary  the  position  of  the  surety  with 
reference  to  those  securities ;  that  has  been  decided  most  distinctly 
in  Mayhew" V.  Crickett  by  Lord  Eldon,  where  there  was  a  warrant 
of  attorney  in  the  hands  of  a  creditor  put  into  operation  by  the 
creditor,  and  a  judgment  obtained,  from  which  he  afterward  dis- 
charged the  principal  debtor.  Lord  Eldon  held  it  utterly  immate- 
rial, whether  the  warrant  of  attorney  was  known  to  the  surety  at 
the  time  he  entered  into  the  contract  or  not.  The  surety  had  a  com- 
plete right  to  the  benefit  of  it,  and  if  the  benefit  were  lost  to  him, 
he  was  at  once  discharged.  "Affirmed  by  the  Lord  Justices,  16th 
of  July,  1857.': 

It  is  argued  that  this  was  a  security  for  a  separate  and  distinct 
debt ;  but  I  am  of  opinion  that  it  was  not  taken  for  a  separate  and 
distinct  debt,  but   lor  the  debt  of  £250. 

'Tarn  of  opinion,  therefore,  that  if  the  defendants  enforce  pay- 
ment of  the  rent  due  them  out  of  the  furniture,  and  then  seek  to 
compel  the  plaintiff  to  pay  the  debt  for  which  he  became  surety, 
the  plaintiff  is  entitled  to  say  to  them,  "you  must  give  me  the 
benefit  of  the  security  on  the  furniture  and  pension  which  were 
mortgaged  to  you  for  this  debt." 

What  the  defendants  have  done  is  this :    They  have  thought  fit 


508  SURETYSHIP    DEFENSES 

to  apply  the  produce  of  the   furniture  to  a  different  and  distinct 
debt,  contrary  to  the  original  arrangement,  on  the  terms  of  which, 
it  is  to  be  assumed,  the  surety  consented  to  become  liable.     I  am 
therefore  of  opinion,  that  hvhatever  the  defendants  have  received^ 
ought  to  be  applied  ratably  in  discharge  of  the  whole  debt,  aricf~ 
that  the  plaintiff  is  only  liable  to  pay  half  of  the  balance. 

f  it  were  otherwise,  the  result  would  be  this:  That  if  a  man 
advanced  £1,000  to  another  on  a  mortgage  of  an  estate,  and  had 
the  security  of  ten  sureties,  each  of  whom  was  liable  for  £100,  he 
might  release  or  reassign  the  mortgage,  and  then  sue  the  ten 
sureties.    This  is  a  proposition  impossible  to  be  sustained. 

If  the  defendants  have  received  anything  from  Castles,  it  must 
not  be  taken  into  account ;  but  with  respect  to  the  money  received 
from  Pearson,  it  ought  to  be  taken  as  a  discharge  for  the  debt. 

As  to  the  pension,  either  they  have  received  it  or  they  have  not ; 
if  they  have,  it  was  distinctly  applicable  to  the  payment  of  their 
debt;  if  they  have  not,  they  must  show  why  they  did  not  make  that 
security  available. 


PLANKINTON,  ASSIGNEE,   RESPONDENT,  v.   GORMAN, 
IMP.,  APPELLANT  / 

93  Wis.  560,  67  N.  W.  1128  (1896). 

Defendant  Matt  H.  Bauer,  on  the  1st  day  of  May,  1893,  made 
his  promissory  note  for  $1,000,  payable  one  hundred  days  after 
date,  to  the  order  of  defendant  Thomas  Gorman,  and  caused  the 
same  to  be  indorsed  by  the  J.  Obermann  Brewing  Company,  and 
thereafter,    for   value,    delivered   the   same   to    Gorman.      Gorman, 

f  thereafter,  indorsed  the  note  to  H.  J.  Killilea,  and  he  indorsed  the 

same  to  the  Plankinton  Bank.  \Thereafter,  and  before  the  note  be- 
came due,  the  brewing  company  made  an  assignment  for  the  benefit 
of  creditors.  At  the  maturity  of  the  note  it  was  duly  protested,  so 
as  to  fix  the  liability  of  the  indorsers.  Thereafter  the  bank  filed 
a  claim  for  the  amount  due  on  the  note  in  the  assignment  proceed- 
Jngs  of  the  brewing  company.  Thereafter,  and  when  the  assignee 
had  sufficient  assets  in  his  hands  to  pay  the  note,  an  agreement 
was  made  between  plaintiff,  as  assignee  of  the  bank  for  the  benefit 
of  creditors,  the  brewing  company,  and  its  assignee,  without  the 
knowledge  of  Gorman,  whereby  plaintiff,  by  a  written  instrument 
under  seal,  released  the  brewing  company  and  its  assignee  from 
such  claim.  Evidence  was  offered  on  the  trial,  and  received  against 
defendant  Gorman's  objection,  to  explain  such  instrument  and  show 
that  it  was  not  a  release  in  fact  of  the  brewing  company,  but  a  mere 
consent  to  a  reassignment  of  the  property  held  by  the  assignee,  so 
that  the  company  might  resume  business  and  ultimately  pay  the 


RELEASE    OF    SECURITIES  jU^ 

note.  The  evidence  tended  to  show  that  the  arrangement  was  made 
with  a  view  of  giving  the  brewing  company  an  indefinite  extension 
of  time  for  the  payment  of  the  note,  and  that  the  real  consideration 
for  the  release  was  the  reassignment  of  the  property  by  the  as- 
signee to  the  brewing  company,  and  its  resumption  of  business. 

At  the  close  of  the  evidence  plaintiff  moved  the  court  to  direct  a 
verdict  in  his  favor,  and  defendant  Gorman  made  a  like  motion  to 
direct  a  verdict  in  his  favor.  The  court  granted  plaintiff's  motion 
and  denied  defendant's  motion.  Judgment  was  entered  in  favor 
of  plaintiff,  and  defendant  Gorman  appealed. 

Marshall,  J.:  The  facts  are  uncontroverted  that  plaintiff  in 
form  executed  and  delivered  an  instrument  reciting  as  a  fact  that 
the  claim  on  the  note  against  the  brewing  company  had  been  fully 
paid,  satisfied,  and  discharged,  and  in  consideration  thereof  plaintiff 
released  and  discharged  such  company,  its  assignee,  and  the  assets 
held  by  him  from  such  claim;  that  there  were  sufficient  funds  or 
assets  in  the  hands  of  such  assignee  to  pay  the  claim ;  that  plaintiff 
had  an  interest  in  or  lien  upon  such  assets  to  the  amount  of  such 
claim,  which  he  surrendered  without  the  consent  of  the  second  in- 
dorser,  the  appellant.  Did  such  release,  under  the  circumstances,  ,  - 
whetherjhe  note  was  actuaJTy"paid  or  not,  have  the  ettectjo  release 
appeTJariFfrom  the  obligation_otJl1c;  indorsement  ry  it  soTthe  court 
errecTTn  directing  the  verdict  for  plaintiff,  and  the  other  questions 
presented  for  review  need,  not  be  considered.  _ 

The  general  rule  is  that/ while  a  creditor  who  has  a  claim  againsb) 
principal  and  surety  is  not  bound  to  proceed  against  the  principal,  if 
He~oroTs7and  obtains  a  lien  upon  his  property  for  the  payment  ofthe 
debt,  and  then  released  it  without  resorting  to  proper  proceedings 
to  make  therefrom  satisfaction  of  such  debt,  the  surety  is  released. 
Maquoketa  v.  Willey,  35  Iowa  323 ;  3  White  &  T.  Lead.  Cas.  Eq. 
(Hare  &  W.  Notes),  552;  Chambers  v.  Cochran,  18  Iowa  159. 
Such  rule  applies  between  successive  indorsers.  Spring  v.  George, 
50  Hun  227;  Smith  v.  Erwin,  77  N.  Y.  466;  Shutts  v.  Finger,  100 
N.  Y.  539.  The  cases  cited  are  to  the  effect  that,  ^hough  a  creditor 
is  not  bound  to  take  active  measures  to  collect  the  debt,  and  after 
commencing  may  stop  short  when,  if  the  proceedings  were  pursued 
to  Uie  end,  they  would  result  in  enforcing  payment,  if  the  creditor 
oncegets  hold  of  or  a  claim  on  property  of  the  principal,  applicable 
to  the  payment  of  the  debt,  and  then  voluntarily  releases  it  to  the 
prejudice  of  the  surety,  such  surety  is  discharged.  In  Smith  v. 
Erwin,  supra,  the  decision  was  adverse  to  the  indorser.  It  was 
placed  on  the  ground  that  the  creditor  had  not  actually  obtained  a 
lien  upon  the  property  and  then  abandoned  or  released  it,  but  had 
simply  neglected  to  obtain  a  lien  when  opportunity  therefor  ex- 
isted. As  said  in  Spring  v.  George,  supra,  the  effect  of  the  decision 
is  that,  if  the  sheriff  who  held  the  execution,  instead  of  merely  neg- 
lecting to  levy  on  the  property  to  satisfy  the  debt  when  he  might 


510 


SURETYSHIP    DEFENSES 


have  done  so,  had  made  a  levy,  and  then  plaintiffs  had  given  such 
directions  to  the  sheriff  as  deprived  them  of  the  lien  thus  obtained, 
the  indorser  would  have  been  discharged  ;  and  such  is  unquestionably 
the  law.  Allen  v.  O'Donald,  23  Fed.  573;  Daniel,  Neg.  Inst.  1311; 
1  Parsons  Notes  &  B.  242 ;  Byles,  Bills,  253,  note ;  Priest  v.  Watson, 
75  Mo.  310;  Winston  v.  Yeargin,  50  Ala.  340;  Sample  v.  Cochran, 
82  Ind.  260. 

Here,  as  between  appellant  and  the  Obermann  Brewing  Com- 
pany, the  latter  was  liable  for  the  debt.  (As  soon  as  plaintiff_filed 
his  claim  in  the  assignment  proceedings,  he  obtained  an  interest  in 
or  lien  on  the  funds  or  assets  in  the  hands  of  the  assignee  for,,  its - 
payment,  which,  if  enforced,  would  have  satisfied  such  claim.  Plain- 
tiff became  a  trustee  in  respect  to  sucli-lieiijor-xlaim  for  the  benefit 
of  the  appellant,  and  his  subsequent  voluntary  release  of  such  lien 
or  claim,  without  appellant's  consent,  ended  the  latter's  liability  on 
the  note. 

IT  follows  that  the  court  erred  in  directing  the  verdict  in  favor  of 
the  plaintiff,  for  which  error  the  judgment  must  be  reversed  and 
a  new  trial  granted. 

By  the  court:  The  judgment  of  the  superior  court  is  reversed, 
and  the  cause  remanded  for  a  new  trial. 


See  also  Day  v.  Ramey,  40.  Ohio  St,  446. 


WULFF  AND  BILLING  v. 

7  L.  R.  Q.  B.  756  (1872).* 


JAY 


Cockburn,  C.  J. :  This  is  an  action  brought  against  the  defend- 
ant, as  surety.  It  appears  that  as  part  of  the  transaction  between 
the  principal  creditors  and  the  debtors,  there  was  to  be  a  mortgage 
of  the  plant,  trade  fixtures,  and  things  upon  the  debtors'  premises, 
by  bill  of  sale  as  security  for  the  principal  debt.  The  debtors  were 
to  remain  in  possession  of  the  things  thus  mortgaged  until  default, 
and  the  creditors  were  to  have  power,  in  the  event  of  a  default  in 
the  payment  of  the  instalments  of  the  debt  which  were  to  be  paid 
under  the  bill  of  sale,  or  in  the  event  of  the  interest,  which  was  to  , 
accrue  from  time  to  time,  not  being  paid,  to  enter  and  sell  the  things 
thus  assigned  upon  giving  a  month's  notice. 

Now,  it  appears  that  in  the  month  of  February  interest  first  be- 
came due,  and  that  interest  was  not  paid,  and  it  remained  unpaid 
until  the  month  of  August,  when  the  debtors  became  bankrupt.  It 
further  appears  that  the  insolvent  condition  of  the  debtors'  affairs 
was  plain,  and  that  bankruptcy  was  imminent,  and  had  been  im- 
pending for  some  time  before  it  actually  took  place ;  and  it  further 

^Statement  of  facts  omitted. 


i 


RELEASE    OF    SECURITIES  511 


appears!  that  one  of  the  creditors  was  cognizant  of  that  fact,  and 
was  afterward,   when  the  bankruptcy  took  place,   solicitor   to  the   - 
proceedings  in  bankruptcy.     He  was  therefore  perfectly  aware  of 
the  bankruptcy  being  imminent.     Notwithstanding  he  took  no  steps 
either  to  protect  the  bill  of  sale  by  registration,  or  to  enter  and  take  f: 
possession  of  the  effects. 

'  Now,  I  think  there  was  a  twofold  laches  on  the  plaintiffs'  part —  2j 
laches  in  the  first  place  in  not  registering  the  bill  of  sale.  If  they 
had  registered  it  the  effect  would  have  been  that  the  fixtures  would 
have  been  protected.  That  would  not  have  applied  to  the  other 
movables  which  remaining  in  the  order  and  disposition  of  the  bank-  r 
rupt  would  have  been  affected  by  the  bankruptcy.  But  then  there 
were  laches  if  possible  of  a  more  serious  description  affecting  not 
only  the  movables  but  the  fixtures  also.  The  plaintiffs  might  have 
entered  and  taken  possession  upon  the  interest  not  being  paid  at  the 
time  when  it  became  due.  Instead  of  doing  this,  however,  they  al- 
low the  mortgagors  to  remain  in  possession  when  they  see  that 
ban^ruptcy_-is-4mp ending  and  imminent.  I  can  not  doubt  myself 
trial  their  intention  was,  that,  being  creditors  ultra  the  amount  thus 
secured,  the  goods  in  question  should  be  available  as  assets  under 
the  bankruptcy,  while  they  had  the  security  of  the  defendant  to 
come  upon  in  order  to  get  paid  the  debt  of  £300,  secured  by  the 
bill  of  sale.  I  think,  looking  at  all  the  circumstances,  it  is  impossi- 
ble to  say  that  the  plaintiffs  did  what  they  ought  to  have  done  to 
realize  the  security  they  possessed.  Cases  have  been  cited  and  au- 
thorities have  been  referred  to  in  Story's  Equity  Jurisprudence, 
which  abundantly  establish  that  which  is  a  common  and  well-known 
proposition,  that  [where  a  debt  is  secured  by  a  surety,  it  is  the  busi-/ 
ness  of  the  creditor,  where  he  has  security  available  for  the  payment  r 
and  satisfaction  of  the  debt,  to  do  whatever  is  necessary  to  make 
that  security  properly  available.  He  is  bound,  if  the  surety  volun- 
tarily proposes  to  pay  the  debt,  to  make  over  to  the  surety  what  se- 
curities he  holds  in  respect  of  that  debt,  so  that,  being  satisfied 
himself,  he  shall  enable  the  surety  to  realize  the  securities  and  re- 
coup himself  the  amount  of  the  debt  which  he  has  had  to  pay.  That 
is  now  a  well-known  proposition.  Here,  by  registering  the  bill  of 
sale,  and  by  afterwards  availing  themselves  of  the  power  which 
they  possessed  to  take  possession,  the  plaintiffs  might  have  secured 
the  payment  of  the  debt  to  themselves,  or  by  protecting  the  se- 
curities and  holding  them  in  their  hands  they  could  have  made  them 
over  to  the  surety  when  the  surety  was  willing,  or  was  called  on, 
to  pay ;  but  by  omitting  to  do  what  was  necessary  in  order  to  place  \ 
themselves  in  that  position,  and  by  allowing  bankruptcy  to  super- 
vene so  as  to  enable  the  trustee  under  the  bankruptcy  to  take  pos- 
session of  these  goods  adversely,  it  is  clear  that  they  have  placed^ 
_thg_  surety  in  a  position  vpry  detrimental  and  prejudicial  to  the  , 
surety;  and  for  that  the  surety  ought  to  have,  according  to  the  gen- 


512 


SURETYSHIP   DEFENSES 


'M 


C-' 


eral  doctrine,  a  remedy.  I  think  the  creditors  have  clearly  been 
guilty  of  laches  in  not  protecting  themselves  and  in  not  availing 
themselves  of  these  securities.  Then  it  is  said,  granted  that  at  the 
end  of  the  time  when  the  interest  had  accrued  the  surety  was  lia- 
ble both  for  principal  and  interest,  and  the  principal  and  interest 
together  amounted  to  £307  10s.,  although  the  surety  is  entitled  to 
say  to  the  creditors,  "I  am  entitled  either  to  have  such  security  as 
you  have  made  available  for  this  debt,  or  I  am  entitled  to  set  off 
the  amount  against  what  I  owe  you  under  my  agreement  to  in- 
demnify you  against  loss  in  respect  of  this  debt,"  yet  he  can  only 
say  it  to  the  extent  of  the  value  of  the  security  itself.  Now,  it 
appears  that  these  goods  which  the  creditors  might  have  taken  pos- 
session of  and  made  available  for  the  payment  of  the  debt,  or  to 
which  they  might  have  given  the  surety  a  title  in  order  that  the 
surety  might  recoup  himself  the  amount  of  his  debt,  were  of  the 
value  of  £300.  They  sold  for  £300.  That  is  exactly  the  amount 
of  the  original  debt,  and  there  is  nothing  to  satisfy  us  that  they  did 
not  realize  their  value  ;  I  do  not  find  anything  leading  to  any  other 
conclusion  than  that  the  goods  did  in  fact  sell  for  what  they  were 
really  worth.  We  must  take  it,  therefore,  that  all  that  was  realized 
was  £300.  Now,  interest  having  accrued,  the  debt  was  £307  10s., 
and  in  respect  of  the  odd  money,  the  plaintiffs  must  have  their  ver- 
dict. There  will,  therefore,  be  a  verdict  for  the  plaintiffs  for  £7  10s. 
Hannen,  J. :  I  am  of  the  same  opinion.  I  think  that  the  plea 
is  substantially  proved.  We  are  not  bound  by  the  exact  terms  of 
it,  but  I  take  it  to  be  established  that  the  defendant  became  surety 
upon  the  faith  of  there  being  some  real  and  substantial  security 
pledged,  as  well  as  his  own  credit,  to  the  plaintiffs ;  and  he  was  en- 
titled, therefore,  to  the  benefit  of  that  real  and  substantial  security 
in  the  event  of  his  being  called  on  to  fulfil  his  duty  as  a  surety,  and 
to  pay  the  debt  for  which  he  had  so  become  surety,  He  will,  how- 
_ever,/be  discharged  from  his  liability  as  surety  if  the  creditors  have 
put  it  out  of  their  power  to  hand  over  to  the  surety  the  means  of 
recouping  himself  by  the  security  given  by  the  principal.  That  doc- 
trine is  very  clearly  expressed  in  the  notes  in  Rees"  v.  Barrington, 
2  White  &  Tudor's  L.  C,  4th  ed.,  at  p.  1002.  "As  a  surety,  on  pay- 
ment of  the  debt,  is  entitled  to  all  the  securities  of  the  creditor, 
whether  he  is  aware  of  their  existence  or  not,  even  though  they 
were  given  after  the  contract  of  suretyship,  if  the  creditor  who  has 
had,  or  ought  to  have  had,  them  in  his  full  possession  or  power, 
loses  them  or  permits  them  to  get  into  the  possession  of  the  debtor, 
or  does  not  make  them  effectual  by  giving  proper  notice,  the  surety 
to  the  extent  of  security  will  be  discharged.  A  surety,  moreover, 
will  be  released  if  the  creditor,  by  reason  of  what  he  has  done,  can 
not,  on  payment  by  the  surety,  give  him  the  securities  in  exactly 
the  same  condition  as  they  formerly  stood  in  his  hands."  And  nu- 
merous cases  are  cited  in  support  of  those  statements. 


RELEASE   OF   SECURITIES  513 

Now,  let  us  see  whether  there  has  been  such  failure  on  the  part 
of  the  principal  creditor  in  this  case.  It  was  argued  by  Mr.  Cole 
that  there  was  no  power  to  do  anything  by  way  of  realizing  the  se- 
curities until  after  the  month's  notice.  But  that  is  not  so.  There  is 
no  power  to  realize  by  selling  without  notice,  but  the  mortgagors 
are  only  entitled  to  retain  possession  of  the  property  until  they  make 
default,  and  on  their  making  default  the  mortgagees  have  the  ordi-  olu 
nary  right  of  mortgagees  to  sieze  that  which  is  already  their  prop- 
erty, although  they  are  restrained  by  the  terms  of  the  deed  from 
selling  immediately.  Default  was  made,  according  to  the  terms  of 
the  deed,  in  February,  when  the  first  instalment  of  interest  became 
due.  Upon  default  taking  place,  the  mortgagees,  if  they  had  chosen 
to  act  upon  the  power  given  them  by  the  deed,  might  have  taken  ' 
possession  of  this  property,  the  effect  of  which  taking  possession' 
would  have  been  to  defeat  both  the  Bills  of  Sale  Act  and  the  order 
and  disposition  clause  in  the  bankruptcy  act,  and  they  would  have 
been  in  a  position,  therefore,  to  hold  this  property  as  against  the 
trustee  in  bankruptcy.  I  am  not  prepared  to  say  that  they  were 
guilty  of  such  laches  the  instant  the  interest  became  due  as  would 
have  entitled  the  surety  to  maintain  that  he  was  released,  but  I  think 
that  is  a  question  which  might  have  gone  to  the  surety ;  and  if  I 
were  in  the  place  of  the  jury  I  should  certainly  find  that  there  had 
been  laches  and  negligence  on  the  part  of  the  plaintiffs.  The 
interest  is  due  in  February,  when  they  might  have  siezed,  and 
they  took  no  step  whatever  until  the  bankruptcy  intervenes  in  Au- 
gust, although  shortly  before  the  bankruptcy  took  place  they  be- 
came aware  that  the  circumstances  of  the  debtors  were  such  as 
would  make  it  right,  in  the  interest  of  all  parties  concerned,  that 
the  security  should  be  protected.  /^AnH^hp_ra f£  is  a^  f^p  mnre^~~ 
strong  because  one  of  the  plaintiffs  is  an  attorney,  and  therefore 
he  would  be  likely  to  know  the  law ;  but  it  is  clear  that,  he  having 
delayed  so  long  to  take  possession,  there  were  circumstances  from  y 
which  the  jury  would  be  warranted  in  finding  that  there  was  a 
negligence  on  the  part  of  the  plaintiff  in  that  respect,  and  in  conse- 
quence of  that  negligence,  the  value  of  this  security  has  been  lost. 

Then  with  regard  to  the  amount:  when  the  first  payment  of  in- 
terest became  due,  the  surety  at  one  and  the  same  amount  becomes 
liable  to  pay  £300  and  £7  10s.    That  was  the  amount  for  which  he  j 
was  liable.     I  think  he  was  not  liable  for  anything  more  than  that, 
because  being  discharged  from  the  principal  sum  by  the  laches  of  . 
the  creditors,  he  is  also  discharged  from  that  which  is  incident  to 
the  principal,  namely,  the  interest;  but  that  does  not  apply  to  the  c 
interest  which  became  due  at  the  same  moment  as  the  principal  be- 
came due,  and  which  therefore  was  a  debt  or  a  liability  which  then 
accrued  to  the  surety.    Then,  if  the  security  had  been  handed  over 
to  him,  as  the  event  shows,  he  would  not  have  been  able  to  realize 
33— De  Witt. 


514 


SURETYSHIP    DEFENSES 


by  way  of  recouping  himself  more  than  £300,  and  it  follows  that 
he  would  remain  liable  for  £7  10s.,  and  I  think  therefore  that  the 
verdict  ought  to  be  reduced  to  that  amount. 

Quain,  J. :  I  am  of  the  same  opinion.  The  rule,  as  it  is  laid 
down  by  Stuart,  V.  C,  in  Strange  v.  Fooks,  4  Giff.  at  p.  412,  3 
K  2,  is  in  these  words :  "It  is  perfectly  established  in  this  court, 
that  if  through  any  neglect  on  the  part  of  the  creditor,  a  security 
to  the  benefit  of  which  a  surety  is  entitled  is  lost,  or  is  not  properly 
perfected,  the  surety  is  discharged."  It  seems  to  me  that  this  case 
comes  directly  within  that  rule.  The  deed  expressly  provides  that, 
"in  the  meantime,  and  until  default  be  made  by  the  mortgagors  in 
the  payment  or  investment,  as  hereinafter  mentioned,  the  mort- 
gagors shall  remain  in  the  possession  and  receipts  of  the  rents  and 
profits  of  the  premises,  plant,  fixtures,  and  things,"  and  it  gives 
the  mortgagors  the  right  to  sieze  on  default  being  made,  and  every 
other  remedy,  except  selling,  for  which  it  is  requisite  that  there 
should  be  a  month's  notice.  Now  that  being  the  case  the  debtors 
make  default  on  the  25th  of  February,  1871,  and  the  mortgagors 
take  no  steps  to  protect  the  goods  from  the  operation  of  the  Bills 
of  Sale  Act,  if  it  is  within  that  act,  or  from  the  reputed  ownership 
clause  in  the  Bankruptcy  Act.  They  do  not  take  possession  of  the 
fixtures  or  plant,  or  any  of  these  goods,  but  allow  the  property  in 
them  to  pass  to  the  trustee.  The  mortgagees  well  knew  the  state 
of  their  debtors,  one  of  the  mortgagees  being  the  attorney  who 
conducted  the  bankruptcy  proceedings.  /The  result  is,_  that  the 
mortgagees  stand  by  and  allow  the  whole"oT  this  property  to  be 
swept  away  by  the  trustee  in  bankruptcy,  and  sold  for  the  benefit 
of  the  estate.  It  appears  to  me,  therefore,  that  that  property  which 
has  been  allowed  to  be  sold  by  the  mortgagees,  is  the  very  property 
which  the  surety  was  entitled  to  have  handed  over  to  him  if  he 
paid  the  sum  that  was  due.  viz.,  £307  10s.  It  seems  to  me  to  fall 
precisely  within  the  rule  that  has  been  referred  to,  and  that  pro 
tanto  the  surety  is  discharged,  and  the  verdict  ought  to  stand  only 
for  £7  10s.  ^^ 

Rule  absolute  to  reduce  the  damages  accordingly. 


N ATHANIEL  F.  CUMMINGS  v.  CHARLES  F.  LITTLE 

ET  AL. 

45  Maine  183  (1858). 

This  case  was  submitted  to  the  full  court,  upon  report  of  the  evi- 
dence by  Davis,  J.  The  facts  sufficiently  appear  in  the  opinion  of 
the  court. 

The  defendants'  were  joint  and  several  promisors  upon  three 
promissory  notes,  payable  to  Wendall  P.  Smith  or  order.     Smith 


o     *5  ' 

RELEASE    OF    SECURITIES  515 

LHJ-i 

also  held  a  mortgage  from  one  of  the  defendants,  of  whom  he  had 
the  notes,  of  personal  property  of  less  value  than  the  amount  of 
the  notes.  Afterward,  without  consulting  the  other  defendants, ' 
who  were  in  fact  sureties  on  the  notes,  though  not  signing  as  such, 
he  discharged  the  mortgage.  At  a  still  later  period,  the  notes  hav- 
ing been  long  overdue,  he  transferred  and  indorsed  them  to  the 
plaintiff  in  this  action.  One  of  the  defendants  has  been  defaulted. 
The  other  defendants  introduced  parol  evidence,  subject  to  the  ob- 
jection of  plaintiff,  that  they  became  parties  to  the  notes  as  sureties 
for  the  one  who  has  been  defaulted;  and  they  contended  that  the 
surrender  of  the  mortgaged  property,  by  Smith,  while  he  held  the 
notes,  discharged  them  from  their  liability. 

The  opinion  of  the  court  was  drawn  up  by  Davis,  J. 

This  is  an  action  upon  three  promissory  notes,  of  the  following 
tenor : 

"Portland,  February  14,  1851. 

"For  value  received,  we,  jointly  and  severally,  promise  to  pay 
to  Wendall  P.  Smith,  or  order,  $126.35  in  one  year  from  date. 

"C.  F.  Little, 
"E.  P.  Little, 
"Alexander   Foss." 

The  notes  differ  only  in  the  time  of  payment.  And  C.  F.  Little  --, 
gave  to  Smith  a  mortgage  of  personal  property,  valued  at  $414, 
of  the  same  date  of  the  notes,  to  secure  the  payment  thereof.  These 
notes  remained  in  Smith's  hands  until  they  were  overdue.  While 
he  held  the  notes  in  suit,  he  also  held  another  note  against  C.  F. 
Little  and  E.  P.'  Little,  amounting  to  about  $300,  not  secured  by 
mortgage.  And  he  agreed  with  C.  F.  Little,  that  if  he  would  pay 
the  note  he,  Smith,  would  surrender  and  discharge  the  mortgage 
given  to  secure  the  other  notes.  This  was  accordingly  done,  with- 
out the  knowledge  or  consent  of  either  of  the  sureties;  and  the  fol- 
lowing indorsement  was  made  upon  the  mortgage : 

"Portland,  Oct.  1,  1853.  The  lien  on  the  within  described  prop- 
erty, created  by  the  within  mortgage,  is  hereby  declared  to  be  dis- 
charged, and  the  property  no  longer  subject  to  said  mortgage ;  but 
the  debt  within  described,  to  secure  which  this  mortgage  was  given, 
is  still  subsisting,  and  in  no  part  paid. 

"Wendall  P.   Smith" 

Smith  afterward  transferred  the  notes  to  the  plaintiff,  who  has 
brought  this  suit  upon  them  as  indorsee.  Charles  F.  Little  has 
been  defaulted.  But  the  other  defendants  contend,  and  have  in- 
troduced evidence  to  prove,  that  they  were  in  fact  sureties,  though 
the  note  itself  did  not  so  indicate;  and  that  Smith,  by  surrendering 
the  collateral  security  taken  by  him  of  the  principal,  has  discharged 
them  from  their  liability. 


516 


SURETYSHIP   DEFENSES 


•  .  - 


It  is  contended  that,  as  these  defendants  did  not  sign  the  notes 
in  such  a  manner  as  to  show  that  they  were  sureties,  evidence  of 
that  fact  is  not  admissible.  Such  evidence  has  often  been  admitted 
in  suits  between  such  sureties  for  contribution.  Carpenter  v.  King, 
9  Met.  511 ;  Lord  v.  Moody,  41  Maine  127.  And,  where  the  action 
is  against  the  signers,  by  a  holder  having  express  or  implied  no- 
tice of  the  fact  that  any  of  them  are  sureties,  this  fact  may  be 
proved  by  parol  evidence.     Harris  v.  Brooks,  21   Pick.  195. 

It  is  said  in  argument  that  there  is  no  evidence  that  Smith  knew 
that  Foss  and  E.  P.  Little  were  sureties.  But,  as  the  note  was  given 
to  him,  he  could  not  have  been  ignorant  that  the  consideration  was 
between  him  and  C.  F.  Little  alone.  He  must,  therefore,  have 
known  that  the  other  defendants  were  sureties.  And,  as  he  trans- 
.  ferred  the  notes  when  overdue,  his  indorsee,  the  plaintiff,  had  im- 
plied notice  of  the  fact.  When  a  person  becomes  a  party  to  a  bill 
or  note  at  the  request  and  for  the  benefit  of  another,  whether  as 
guarantor,  indorser,  or  surety,  the  relation  of  principal  and  surety 
exists  and  must  be  regarded  by  all  parties  affected  with  notice. 
Griffith  v.  Reed,  21  Wend.  502;  Pitts  v.  Congdon,  2  Comst.  352. 
This,  of  course,  does  not  include  an  indorser  of  negotiable  paper 
in  the  usual  course  of  business.  Such  an  indorser  is  not  a  surety 
for  the  maker,  and  is  not  discharged  if  the  holder  extends  the  time 
of  pavment,  or  surrenders  collateral  security  taken  from  the  maker. 
Hurd  v.  Little,  12  Mass.  503. 

The  plaintiff,  in  this  case,  having  taken  the  notes  after  they  were 
dishonored,  they  are  subject  to  whatever  defense  might  have  been 
made  to  them  in  the  hands  of  Smith.  Did  the  discharge  of  the 
mortgage,  by  Smith,  operate  as  a  release  of  the  sureties  upon. the 
notes  ? 

That  an  extension  of  the  time  of  payment  given  to  the  principal, 
or  a  surrender  of  collateral  security,  without  the  assent  of  the 
sureties,  will  discharge  them  from  their  liability,  is  a  principle _  of 
law  established,  beyond  all  controversy,  by  numerous  authorities. 
1  Story's  Eq.  325 ;  Baker  v.  Briggs,  8  Pick.  122.  And  this— not  on 
the  ground  that  the  contract  is  thereby  changed — but  on  the  ground 
that  the  surety  is  entitled  to.be  subrogated  to  all  the  rights  and  se- 
curities of  the  creditor;  and  if  the  creditor,  without  the  assent  of 
the  sureties,  surrenders  or  impairs  their  rights,  and  thus  deprives 
them  of  their  means  of  reimbursement,  he  shall  not  afterward  com- 
.  pel  them  to  pay  the  debt.  Bangs  v.  Strong,  4  Comst.  315;  Clason 
v.  Morris,  10  Johns.  539 ;  Mathews  v.  Aiken,  1  Comst.  599. 

"The  rule  here  is  undoubted,"  says  Lord  Brougham,  "and  is 
founded  in  the  plainest  principles  of  natural  reason  and  justice, 
that  the  surety,  paying  off  a  debt,  shall  stand  in  the  place  of  the 
creditor,  and  have  all  the  rights  which  he  has  for  the  purpose  of 
obtaining  reimbursement."  Hodgson  v.  Shaw,  3  Mylne  &  Keene 
183.     And  Chancellor  Kent  says:    "A  surety  will  be  entitled  to 


X 

f 


RELEASE    OF    SECURITIES  517 

stand  in  the  place  of  the  creditor,  to  enforce  every  security,  and  to 
have  those  securities  transferred  to  him,  that  he  may  avail  himself 
of  them  against  the  debtor.  This  right  stands  not  upon  contract, 
but  upon  the  same  principal  of  natural  justice  upon  which  one 
surety  is  entitled  to  contribution  against  another."  Hays  v.  Ward, 
4  Johns.  Chan.  Cases  130. 

Applying  these  principles  to  the  case  before  us,  it  is  obvious  that    . 
Smith  was  under  obligation  to  hold  the  mortgaged  property,  not 
merely  for  his  own  benefit,  but  for  the  benefit  of  the  sureties  upon  : 
the  notes  secured  by  it.     And  if  he  chose,  without  their  assent,  to  j^Jj^ 
surrender  the  security  without  the  payment  of  the  notesjit  wouk 
be  contrary  Jo^guity  and  good  conscience  for  him  to  be  allowed,, 
atterward_to~enforce  the  payment  of  the  notes  against  them. 

It  is  said,  however,  that  these  facts  ought  not  to  be  held  to  dis- 
charge E.  P.  Little,  because  the  money  paid  when  the  mortgage 
was  discharged  by  Smith  was  appropriated  in  payment  of  a  note 
on  which  he  was  liable  with  C.  F.  Little.  And  we  should  be  of 
that  opinion,  if  the  money  had  been  the  proceeds  of  the  mortgaged 
property.  In  that  case,  it  could  have  made  no  difference  to  E.  P. 
Little,  whether  it  was  applied  to  one  note  or  another,  he  being 
liable  on  both.  But  it  does  not  appear  that  the  property  was  sold. 
C.  F.  Little  may,  at  that  time,  have  been  able  to  pay  the  note  with- 
out selling  the  property.  Or,  as  the  other  note  had  been  put  in 
suit,  E.  P.  Little  may  have  furnished  the  money  with  which  it  was 
paid.  Or,  if  C.  F.  Little  procured  it  otherwise,  it  does  not  appear 
that  he  would  not  have  paid  the  note,  and  thus  settled  the  action  ^  < 
commenced  upon  it,  though  Smith  had  refused  to  discharge  the  I 
mortgage.  The  case  is  silent  on  all  these  points.  And  we  can  not. ' 
infer  that  the  release  of  the  collateral  security  was  no  injury  to 
E.  P.  Little,  merely  from  the  fact  that  another  note  on  which  he 
was  liable  was  paid  on  the  same  day. 

A  more  difficult  question  still  remains.  The  notes  secured  by  the 
mortgage  amounted  to  $505.40.  The  property  mortgaged  was 
valued  at  $414.  One  of  the  notes  had  been  paid.  But  the  .three 
remaining  notes,  which  are  now  in  suit,  had  been  on  interest  from 
their  maturity ;  and,  at  the  time  when  the  mortgage  was  discharged,  t/ 
they  amounted  to  (more  than  the  value  of  the  mortgaged  property.  ' 
It  has  been  treated  as  a  doubtful  question,  whether  the  value  of 
the  property  stated  in  the  mortgage  is  not  conclusive  upon  the  Lf 
parties.  Admitting  that  it  is  conclusive,  it  is  so  only  in  regard  to 
the  value  at  the  date  of  the  mortgage.  Any  subsequent  loss  or  de- 
preciation may  properly  be  taken  into  consideration  in  estimating 
the  value  of  the  property  at  the  time  when  the  mortgage  was  dis- 
charged. And  it  is  obvious  that  the  discharge  of  the  mortgage 
could  have  injured  the  sureties  only  to  the  amount  of  the  value  of 
the  property,  so  estimated.  And,  though  the  sureties  are  discharged 
to  that  extent,  for  the  excess  of  the  amount  due  at  the  date  of  the 


f- 


/ 


518 


SURETVSHIP   DEFENSES 


discharge,  over  and  above  the  value  of  the  property  then  released 
the  sureties  are  still  liable.  American  Bank  v.  Baker,  4  Met.  164 
Bank  v.  Colcord,  15  N.  H.  119,  9  Watts  &  S.  36;  20  Penn.  297 
6  Sra.  &  Marsh.  24. 

But  it  does  not  follow  that  they  are  liable  in  this  action.  If  an 
action  at  law  can  be  maintained  upon  the  note,  it  can  not  be  against 
the  principals  and  sureties  jointly.  For,  in  such  an  action,  the  de- 
fendants can  not  be  separated  in  the  judgment.  They  must  stand 
or  fall  together.  But  they  are  not  liable  for  the  same  amount. 
How,  then,  can  judgment  be  entered  up?  There  is  no  provision  of 
law  by  which  the  principal  may  be  held  for  the  whole,  and  the 
sureties  for  a  part  only,  and  several  executions  be  issued  accord- 
ingly. Nor  have  this  court  general  equity  powers,  as  in  some  of  the 
states,  by  which,  after  judgment  against  all  the  parties,  the  plain- 
tiff may  be  enjoined  from  enforcing  it  against  the  sureties  for  the 
'  whole  amount.  Therefore,  in  an  action  at  law,  unless  they  may 
prove  the  release  of  the  collateral  security  as  an  entire  defense  to 
the  action,  they  have  no  remedy.  Baker  v.  Briggs,  8  Pick.  122. 
In  this  action,  if  liable  at  all,  they  are  liable  for  the  whole  amount 
of  the  note.  Not  being  liable  for  the  whole,  they  can  not  be  held  in 
this  suit  for  any  part.  If  the  plaintiff  had  released  the  principal, 
he  would  thereby  have  discharged  the  sureties.  But  the  release  of 
collateral  security,  of  less  value  than  the  amount  of  the  note,  dis- 
charged the  sureties  pro  tanto^ojily^  As  to  the  plaintiff's  remedy 
for  the  balance,  it  is  unnecessary  for  us  to  express  any  opinion. 

According  to  the  agreement  of  the  parties,  a  nonsuit  must  be  en- 
tered. 

See  also  Guild  v.  Butler,  127  Mass.  386. 


;'t    / 


NEFF'S  APPEAL 
9  Watts  &  Serg.  (Pa.)  36. 


Kennedy,  J. :  We  also  think  that  the  second  point  of  the  appel- 
lants can  not  be  sustained.  It  is  doubtless  true,  if  the  creditor,  by 
a  new  agreement  with  the  principal,  without  the  assent  of  the 
surety,  makes  any  material  alteration  in  the  agreement  whereby 
the  surety  became  bound  as  such,  the  surety  will  thereby  be  dis- 
charged, because  the  only  contract  that  bound  him  is  no  longer  in 
being;  for  the  change  and  alteration  of  it  by  the  operation  of  the 
new  contract,  made  without  his  consent,  in  effect  annuls  and  sets 
aside  the  contract  by  which  he  bound  himself,  and  the  only  one  to 
which  he  was  a  party.  So  if  the  creditor  releases  the  principal  from 
the  payment  of  the  debt,  he  thereby  releases  the  surety  entirely. 
But  if  he  releases  the  principal  from  a  part  only  of  it,  he  only  re- 


cr*-^ 


Oo 


W~.  ■ 

RELEASE    OF    SECURITIES  519 

Jo'  in^- 

' 'leases  the  surety  pro  tanto ;  and  there  is  not  even  the  shadow  of  rea-  , 

son  why  it  should  be  considered  a  release  for  any  more.  So  if  the  ' 
creditor  give  up  to  the  principal  or  release  a  security  which  he  has 
obtained  from  him  for  the  whole  of  the  debt,  it  will  operate  as  a  re- 
lease or  discharge  of  the  surety  from  all  liability  as  such ;  but  if  J 
the  security  released  be  only  for  part  of  the  debt,  the  surety  will 
only  be  released  pro  tanto.  The  ground  upon  which  the  relinquish- 
ment or  negligent  losing  of  a  security  taken  of  the  principal  debtor 
by  the  creditor  for  the  whole  or  part  only  of  the  debt,  is  held  to 
be  a  release  of  the  surety  either  for  the  whole  or  pro  tanto,  as  the  ~ 
case  may  be,  is,  that  the  surety  upon  payment  of  the  debt  to  the 
creditor,  is  entitled  to  the  benefit  of  all  securities  which  the  creditor 
has,  that  he  could  have  rendered  available  against  the  principal  M 
debtor;  and  if  any  of  those  securities  have  become  lost,  or  have' 
become  lessened  in  value,  in  consequence  of  the  neglect  or  de- 
fault -of  the  creditor,  the  surety's  liability  to  the  creditor  will  be 
diminished  to  that  extent.  Vide  Pitman  on  Principal  and  Surety 
113-14;  40  Law  Lib.  86;  Theobald  on  Principal  and  Surety  84, 
85,  etc. ;  Commonwealth  v.  Miller  (8  Serg.  &  Rawle  452,  457-8)  ;  t 
2  Swanst.  189.  When  the  real  value  of  the  security,  lost  by  neglect 
of,  or  given  up  by  the  creditor,  is  capable  of  being  ascertained  with 
certainty,  and  it  is  less  than  the  amount  of  the  debt,  it  would  not 
only  be  contrary  to  reason  to  extinguish  the  liability  of  the  surety 
entirely,  as  a  diminution  equal  in  extent  to  the  value  of  the  security 
given  up  or  lost  is  amply  sufficient  to  protect  him  from  any  loss  L 
that  could  accrue  from  his  not  obtaining  such  security,  which  is 
the  utmost  that  he  can  with  reason  claim ;  but  it  would  likewise  be .  " 
repugnant  to  the  ground  or  principle  upon  which  the  surety  has  a 
right  to  claim  a  discharge  from  his  liability  as  such.  But  when  it 
is  impracticable  to  ascertain,  with  any  degree  of  certainty,  whether 
the  security  lost  or  relinquished  might  not  have  availed  the  surety 
to  the  full  extent  of  the  debt,  in  case  he  had  paid  it,  it  would  seem 
to  be  right  that  he  should  be  discharged  entirely  from  all  liability, 
and  that. burthen  of  proving  the  value  of  the  security  should  lie  on 
Ithe  creditor.  In  the  present  case,  however,  although  it  appears  that 
;Mrs,  Wilcox  released  thirty  acres  of  the  land  of  the  principal 
'debtor  from  the  lien  of  her  judgment,  yet  it  was  done  for  the  pur- 
pose of  increasing  the  value  of  the  security,  and,  in  this  respect, 
rendering  it  more  certain,  which  she  had  for  the  payment  of  her 
debt,  instead  of  lessening  it ;  and  in  the  opinion  of  the  auditor, 
and  according  to  the  evidence  given  before  him,  this  would  seem 
to  Tiave  been  the  effect  of  what  she  did  ;  that  by  making  a  small 
portion  of  the  tract  pay  the  mortgage  debt,  which  was  an  incum- 
brance upon  the  whole  tract,  prior  in  date  to  the  lien  of  her  judg- 
ment, and  might  at  a  forced  sale  have  swept  away  the  whole  tract 
tolpay  it.  It  was  in  fact  a  charge  upon  the  whole  tract  of  land,  and 
from  all  that  appears  in  the  case,  the  land  was  the  only  resource 


520 


SURETYSHIP   DEFENSES 


M 


from  which  payment  of  it  could  be  obtained,  so  that  Mrs.  Wilcox 
had  no  alternative  which  seemed  so  well  suited  to  preserve  at  least 
a  portion  of  the  land  as  a  security  for  the  payment  of  her  judgment, 
as  that  of  releasing  the  thirty  acres  from  the  lien  of  it.  It  may, 
therefore,  be  very  properly  considered  an  improvement  of  her  se- 
curity, instead  of  a  diminution  of  it. 
Decree  affirmed. 


*Facts  and  part  of  opinion  omitted. 

See  also  Provan  v.  Percy,  11  La.  Ann.  179. 

Note :  A  surety  will  not  be  released  by  the  substitution,  by  the  creditor  of 
one  collateral  security  for  another,  when  made  in  good  faith  and  apparently 
for  the  benefit  of  all  concerned,  and  when  it  is  not  shown  that  the  substituted 
security  is  worth  less  than  the  judgment.  State  Bank  v.  Smith,  155  N.  Y.  185, 
49  N.  E.  680 ;  Berlin  Nat.  Bank  v.  Guay,  76  N.  H.  216,  81  Atl.  475. 

A  bank  holding  the  note  of  its  depositor  for  which  another  is  surety  is 
under  no  obligations  to  the  surety  to  apply  the  deposits  of  the  maker  to  the 
payment  of  the  note.  The  bank  may  honor  the  checks  of  the  maker  "of  the 
note,  after  default,  for  the  entire  deposit,  and  still  hold  the  surety.  Daven- 
port v.  State  Bank  Banking  Co.,  126  Ga.  136,  54  S.  E.  977,  8  L.  R.  A.  (N.  S.) 
944n,  115  Am.  St.  68n,  7  Ann.  Cas.  1000. 


SECTION  10.   RELEASE  OF  COSURETY 


SCHOCK  v.  MILLER 


10  Pa.  St.  401  (1849). 


Debt  against  the  administrators  of  Hertzler,  on  a  joint  and  sev- 
eral bond  executed  by  Hertzler  and  Funk  as  sureties,  and  by 
Wright  as  principal.  On  the  trial,  the  defendants  gave  in  evidence 
an  indorsement  on  the  bond,  signed,  but  not  sealed,  by  the  plain- 
tiff, which  recited  a  receipt  of  a  sum  of  money  from  Funk,  one  of 
the  sureties,  being  one-half  of  the  amount  due  on  the  bond,  as  and 
for  his  full  share  and  part  of  the  obligation.  It  then  continued: 
"And  I  do  hereby  release  him,  the  said  Henry  Funk,  his  heirs, 
executors,  and  administrators,  of  and  from  all  claim  and  demand 
from  or  (by)   reason  of  the  within  obligation."  . 

The  plaintiff  then  offered  to  prove,  by  the  subscribing  witness  to 
this  indorsement,  that  it  was  not  intended  by  the  parties  to  release 
Hertzler,  but  only  to  exonerate  Funk.  The  court  (Lewis,  P.  J.) 
rejected  the  evidence,  and  directed  a  verdict  for  defendant. 

Rogers,  J. :  Where  the  effect  is  to  increase  the  responsibility  of 
those  who  are  not  included  in  its  terms,  the  release  of  one  or  more 
joint,  or  joint  and  several  debtors,  operates  as  a  discharge  of  all 
the  others  from  the  obligation  of  the  debts.  But,  when  the  effect 
will  be,  not  to  increase  the  responsibility  of  the  other  obligors,  it 


RELEASE    OF    COSURETY  521 

operates  as  a  release  pro  tanto  only.  Thus,  a  release  of  the  princi- 
pal debtor  discharges  the  sureties,  because  it  throws  the  burthen  of 
the  debt  on  the  sureties,  who,  as  between  the  obligors,  are  not  lia- 
ble for  the  debt,  and  is,  therefore,  an  injury  to  them;  but  the  re- 
lease of  one  or  more  of  the  sureties  does  not  discharge  the  prin- 
cipal debtor,  for  the  plain  reason  that  he  is  primarily  liable  for  the 
debt,  and  the  release  of  the  surety  may  injure  the  creditor,  but 
can  not,  by  any  possibility,  prejudice  him.  These  principles  are 
supported  by  reason  and  authority.  Thus,  the  release  of  a  princi- 
pal debtor  will  discharge  a  mere  surety,  but  the  release  of  one  co- 
/  surety  will  exonerate  the  other  only  to  the  extent  which  the  releasee 
/  would  otherwise  be  compelled  to  pay :  Ex  parte  Gifford,  6  Ves. 
,'  805.  And  in  Mortland  v.  Himes,  8  Barr.  265,  which  recognizes 
f,  Ex  .parte  Gifford,  it  is  ruled  on  the  principle  above  stated,  that  a 
'--releaseof  the  sur^¥-dQes-rLQt.-.ex.onerate  the  principal  debtor.  Mr. 
Justice"  Bell,  who  examines  the  cases  bearing  on  the  point,  puts  the 
question  on  the  only  rational,  principle:  that  whether  the  release  , 
of  one  joint,  or  joint  and  several  debtor,  discharges  the  others,  de- 
pends on  the  question  whether  the  effect  will  be  to  increase  the  re- 
sponsibility of  the  other  debtors.  If  not,  though  effective  as  a  re- 
lease, it  is  never  permitted  to  work  a  dissolution  of  the  contract  as 
to  the  party  not  released.  In  Pitman  on  Surety,  40  Law.  Lib.  178, 
the  law  is  thus  stated :  "As  the  reason  for  discharging  a  surety 
from  his  liability  when  time  has  been  given  to  the  principal  debtor, 
is,  that  the  creditor  has  done  an  act  by  which  the  surety  is  or  may 
be  injured,  any  agreement  entered  into  between  the  creditor  and 
the  principal,  by  which  the  remedies  of  the  sureties  are  not  deter- 
mined or  effected,  and  still  less  by  which  they  are  accelerated,  as 
it  can  not  prejudice  the  surety,  so  it  shall  not  discharge  him."  So, 
in  Whitehill  v.  Wilson,  3  Penna.  405,  it  is  said,  if  the  creditor  re- 
leases the  principal  from  the  payment  of  the  debt,  he  thereby  re- 
leases the  surety  entirely.  But,  if  he  releases  the  principal  from  a 
part,  he  only  releases  the  surety  pro  tanto,  and  there  is  not  even  a 
shadow  of  reason  why  it  should  be  considered  as  a  release  for  any 
more.  Now,  granting  the  instrument  to  be  a  technical  release,  does 
it  discharge  the  cosurety  from  all  liability,  or  pro  tanto  only?  We 
think  the  latter  to  be  clear,  on  reason,  and  on  the  authorities  al- 
ready cited.  The  discharge  of  a  surety  by  a  creditor  has  not  the 
effect  of  the  discharge  of  the  principal,  without  reserve,  and  there- 
fore a  cosurety  is  not  discharged.  In  1  Stor.  Eq.  Juris.  498a,  the 
learned  commentator  remarks :  "That  it  seems  now  clearly  estab- 
lished at  law,  that  a  release  or  discharge  of  one  surety  by  the  cred- 
itor, will  operate  as  a  discharge  of  all  the  other  sureties,  even  though, 
it  may  be  founded  on  a  mere  mistake  of  law ;  but,  it  may  be  doubted 
whether  the  same  rule  will  be  allowed  universally  to  prevail  in/ 
equity."  Indeed,  circumstances  may  exist,  in  which  even  a  release 
of  the  principal  might  not  release  the  surety  from  the  debt,  when 


522 


SURETYSHIP    DEFENSES 


IS 


it  was  clear,  from  the  whole  transaction,  that  it  was  intended  the 
surety  should  remain  bound.  Also,  in  this  action,  commenting  on 
Lord  Denman's  opinion  in  the  case  of  Nicholson  v.  Revill,  4  A.  & 
E.  675,  Mr.  Justice  Story  remarks:  "It  is,  however,  to  be  remem- 
bered that  his  lordship  was  here  dealing  with  the  question  at  law, 
but,  it  by  no  means  follows  that,  because  a  security  is  extinguished  at 
law,  therefore  it  is  extinguished  in  equity,  if  it  is  the  clear  inten- 
tion of  the  parties  that  it  should  not  be  extinguished.  Thus,  an 
agreement  between  husband  and  wife,  without  the  intervention  of 
trustees,  will  be  enforced  in  equity,  although  void  at  law  ;  for  equity 
will  not  suffer  the  intention  of  the  parties  to  be  defeated  by  the  very 
act  which  is  designed  to  give  effect  to  such  a  contract."  Whatever, 
then,  may  be  the  effect  of  a  release  at  law,  it,  in  equity  (and  equity 
is  part  of  our  law),  is  a  discharge  pro  tanto.  And  why  should  the 
law  be  otherwise?  For  this,  no  rational  reason  has  or  can  be  given. 
In  this  case  it  is  clear,  that  the  act  of  the  creditor,  so  far  from  being 
an  injury,  is  a  benefit  to  the  cosurety,  for  it  relieves  him  from  the 
payment  of  a  moiety  of  the  debt,  the  whole  of  which  he  might 
^otherwise  be  compelled  to  pay.  If  it  be  a  prejudice  to  any  one,  it 
is  the  creditor  ;  but  of  this,  surely,  the  cosurety  has  no  right  to  com- 
plain. Why  the  creditor  agreed  to  release  one  of  the  sureties  upon 
payment  of  his  share  of  his  debt,  we  are  not  informed;  nor  is  it 
"material,  as  we  are  satisfied  [he  had  the  right  without  the  consent, 
or  against  the  consent,  of  the  cosurety,  to  do  so,  without  effecting 
or  impairing  his  claim,  except  to  the  extent  of  moiety  of  the  debt. 
The  executors  of  Hertzler  can  not  be  compelled  to  pay  more  than 
they  are  equitably  bound  to  pay  on  the  insolvency  of  the  principal 
debtor,  viz.,  a  moiety  of  the  debt.  To  that  extent,  and  to  that  ex- 
tent only,  they  have  a  defense  to  the  action. 

The  principle  which  rule  this  case  is  decided  in  Ex  parte  Gifford 
and  Mortland  v.  Himes,  already  cited ;  the  only  difference  in  the 
latter  being  that  it  was  the  principal  who  relied  on  the  release  as  a 
defense.  In  this  it  is  the  cosurety,  the  principal  being  insolvent. 
In  principle,  it  is  impossible  to  distinguish  the  cases. 

Judgment  reversed,  and  a  venire  de  novo  awarded. 

Accord:    Smith  v.  State,  46  Md.  617. 


SAMUEL  ALFORD,  JR.,  v.   CHESTER   BAXTER 
36  Vt.  15S  (1863). 

Assumpsit  on  a  promissory  note.  Plea,  the  general  issue  and  no- 
tice. Trial  by  court,  by  consent  of  parties,  December  term,  1862. 
Barrett.  J.,  presiding. 

The  plaintiff  read  the  note  declared  on  without  objection,  signed 
by  Isaac  Green  as  principal,  and  Geo.  B.  Green,  Jo.  D.  Hatch  an  1 


J\M*^4>^^  RELEASE    OF    COSURETY  525 

Chester  Baxter  as   sureties,  and   indorsed  to  the  plaintiff   by   the 
payee  Albert  Brown,  guardian,  without  recourse ;  and  rested. 

The  defendant  read,  without  objection,  a  discharge  from  Brown 
the  payee,  to  Hatch,  and  proved  that  it  had  been  duly  executed 
and  delivered.     It  was  conceded  that  Brown  at  the  time  of  the  exe- 
cution and  delivery  of  this  discharge  was  the  holder  of  the  note.  ] 
The  plaintiff  then  read  in  evidence  an  instrument  appended  to  the, 
discharge  in  the  following  words : 

"Having  examined  the  foregoing  contract,  I  hereby  consent  and 
ratify  the  same  and  hereby  bind  myself  to  discharge  said  Hatch 
from  all  liabilities  the  said  Hatch  may  be  under  to  me  as  a  co- 
indorser  as  fully  as  the  said  Brown  has  discharged  said  Hatch. 

"In  witness  whereof,  I  hereunto  set  my  hand  and  seal  this  6th  <y     (^ 
day  of  August,  a.  d.  1861.     (Signed)     Chester  Baxter  (L.  S.) 

"In  presence   of   Hiram   Harlow." 

The  defendant  contended  that  the  discharge  was  effectual  to  dis- 
charge the  whole  debt  and  that  the  defendant  was  entitled  to  re- 
cover his  costs. 

The  plaintiff  insisted  that  the  note  was  not  so  discharged,  and 
that  the  plaintiff  was  entitled  to  judgment. 

The  court  rendered  judgment  for  the  plaintiff  to  recover  the  bal-   ' 
ance  of  the  note  which  was  not  paid  by  Hatch,  being  two-thirds  of 
the  note  with  the  interest  thereon.     Exceptions  by  the  defendant. 

Peck,  J. :  The  only  question  is  whether  the  release  executed  by 
Brown  to  Hatch,  one  of  the  three  sureties,  in  connection  with  the 
defendant's  assent  and  agreement  annexed  thereto,  releases  the  de- 
fendant, another  surety,  from  all  liability  as  the  defendant  claims, 
or  only  from  one-third  of  the  note,  as  the  plaintiff  claims.  The  de- 
fendant claims  that  at  common  law  the  release  operates  to  dis- 
charge the  defendant  from  all  liability,  and  that  the  statute  of  1855, 
providing  for  the  discharge  of  one  or  more  of  several  joint  obli-  * 
gors  or  promisors,  without  impairing  the  right  to  secure  the  residue 
of  the  debt  against  the  others,  is  confined  to  the  discharge  of  one  \ 
or  more  of  several  principals  and  does  not  extend  to  the  case  of  a 
discharge  of  one  or  more  of  several  sureties. 

_  The  first  section  in  general  terms,  without  limitation  or  qualifica- 
tion, provides  that  any  creditor  who  has  or  may  have  a  debt  or  de- 
mand against  a  copartnership,  or  several  joint  obligors  or  prom- 
isors, may  discharge  one  or  more  of  such  copartners,  obligors  or 
promisors,  without  impairing  his  right  to  recover  the  residue  of  his 
debt  or  demand  against  the  other  copartners,  obligors  or  promisors.  ' 
There  is  nothing  in  the  language  of  this  section  which  necessarily 
restricts  \t  to  principals.  In  case  of  a  demand  against  a  copart- 
nership, if  one  member  of  the  firm  is  principal  the  others  generally 
would  be,  but  not  necessarily.  One  might,  by  authority  from  the 
others,  pledge  the  name  of  the  copartnership  for  his  individual 
debt,  in  which  case  the  others  would  be  his  sureties.     So  all  the 


524 


SURETYSHIP    DEFENSES 


aJ> 


members  of  the  firm  may  be  surety  under  the  copartnership  name, 
as  well  as  an  individual.  But  even  if  from  the  word  copartners 
principals  only  are  contemplated,  the  word  is  only  used  as  an  in- 
stance, and  does  not  have  the  effect  to  limit  or  restrain  the  mean- 
ing of  the  more  general  words,  "obligors  or  promisors."     Suri 

j  on  a  promissory  note  are  as  much  joint  promisors_as  are  the  prin- 

I  cipals.     All  are  joint  promisors  as  between  them  and  the  creditor; 

i  and  it  is  the  relation  of  debtor  and  creditor  that  the  statute  in  this 
section  is  dealing  with,  rather  than  the  relation  of  the  debtors  with 
each  other.  The  second  section  provides  how  the  suit  may  be 
brought  to  recover  the  residue  of  the  debt,  that  is,  by  alleging  by 
whom  the  contract  was  made  and  to  whom  a  discharge  has  been 
executed.  Thus  far  there  is  nothing  in  the  language  of  the  act  lim- 
iting its  application  to  the  discharge  of  principals.  The  statute  is 
remedial,  and  was  enacted  to  remedy  or  abrogate  a  harsh  rule  of 
the  common  law  that  often  worked  injustice.  It  should  therefore 
be  construed  liberally,  so  far  as  it  can  be,  consistently  with  its  lan- 
guage, to  effect  the  purpose  the  legislature  had  in  view.  It  should 
be  so  construed  as  to  advance  the  remedy  and  cure  the  mischief, 
so  far  as  the  language  will  permit.  If  the  words  are  susceptible  of 
two  interpretations,  that  construction  should  be  adopted  which  most 
effectually  cures  the  mischief  intended  to  be  remedied.  No  reason 
is  perceived  why  the  purposes  of  justice  do  not  require  that  when 
a  debt  falls  on  several  sureties,  the  creditor  should  not  have  the 
same  right  to  release  one  on  his  paying  his  share,  that  he  has  to 

"  release  one  of  several  principals,  without  thereby  discharging  the 
others  from  their  liability  to  pay  their  just  proportion.  The  stat- 
ute obviously  contemplates  its  application  to  contracts  on  which 
there  are  sureties,  as  appears  from  the  language  of  the  third  sec- 
tion ;  but  still  this  is  not  conclusive  against  the  defendant's  con- 
struction limiting  it  to  cases  where  a  principal  is  discharged.  But 
unless  there  is  something  in  the  language  of  the  third  section  which 
limits  the  act  to  cases  where  a  principal  is  discharged,  we  see  no 
reason  why  it  should  receive  such  a  limited  construction.  In  fact 
the  mischief  of  the  common-law  rule,  if  it  is  as  claimed  by  the  de- 
fendant's counsel,  seems  to  be  greater  as  applicable  to  the  discharge 
of  a  surety,  because  under  that  rule  the  release  of  the  surety  on  a 
joint  contract,  who  as  between  him  and  the  principal  ought  to  pay 
nothing,  releases  the  principal  who  ought  to  pay  the  whole  debt. 
The  third  section  provides  that,  "said  discharge  shall  have  the  same 
effect  for  all  purposes,  and  as  to  all  persons,  as  payment  by  the 
party  discharged,  of  his  equal  part  of  the  debt,  according  to  the 
number  of  the  debtors  aside  from  sureties."  This  is  the  provision 
mainly  relied  on  in  support  of  the  construction  contended  for  by 
the  defendant.  It  is  urged  that  the  expression,  "according  to  the 
number  of  debtors  aside  from  sureties,"  shows  that  the  statute  was 
intended  to  apply  only  to  the  discharge  of  a  principal.    The  phrase, 


RELEASE    OF    COSURETY  525 

"aside  from  sureties,"  was  not  inserted  for  the  purpose  of  prevent- 
ing the  application  of  the  statute  to  cases  of  the  discharge  of  one 
or  more  of  several  sureties,  but  for  a  different  purpose.  The  pre- 
ceding part  of  the  section  having  provided  that  the  discharge 
should  not  operate  to  release  the  debt  beyond  the  amount  of  the 
share  of  the  party  discharged,  and  having  referred  to  the  number 
of  debtors  as  the  criterion  of  this  apportionment,  it  was  necessary 
to  provide  that  sureties  should  not  be  counted  for  this  purpose. 
This  is  manifestly  just;  for  if  one  of  two  principals  is  discharged, 
it  ought  to  operate  to  discharge  halt  the  debt  even  if  there  are 
sureties,  and  if  the  principals  are  all  discharged  it  ought  to  be  a 
discharge  of  the  sureties  if  the  creditor  knew  the  fact  that  they 
were  sureties.  The  word  sureties  in  this  section  may  be  construed 
to  mean,  sureties  of  the  party  discharged.  If  this  is  the  sense  in 
which  the  word  is  used,  the  language  of  the  statute  harmonizes 
with  its  obvious  intent.  As  the  defendant  is  not  a  surety  for  Hatch, 
who  was  discharged,  and  as  the  same  relation  exists  between  the 
sureties  as  among  themselves,  that  exists  between  joint  principals 
(each  being  bound  to  pay  his  proportion  according  to  their  num- 
bers), we  see  no  reason  why  the  release  of  one  of  three  sureties 
should  release  the  other  sureties  beyond  the  amount  of  the  share 
of  that  surety  to  pay  as  between  him  and  his  cosureties. 

But  if  we  are  wrong  in  supposing  the  word  sureties  to  mean  only 
sureties  of  the  party  discharged,  and  if  the  language  of  the  third 
section  is  not  broad  enough  to  embrace  cases  of  the  discharge  of 
sureties,  the  result  is  the  same ;  for  the  most  that  can  then  be  said 
is  that  in  providing  what  the  effect  of  a  discharge  may  be,  the  third 
section  has  omitted  to  specify  the  case  of  the  discharge  of  one  of 
several  sureties  in  an  action  against  another  surety.  This  omission 
can  not  have  the  effect  to  exclude  such  case  from  the  operation  of 
the  first  section,  which  gives  the  right  to  the  creditor  to  discharge 
one  or  more  obligors  or  promisors,  "without  impairing  his  right  to 
recover  the  residue  of  his  debt  or  demand  against  the  other  copart- 
ners, obligors  or  promisors."  The  first  section  gives  the  right,  and 
upon  no  reasonable  construction  is  it  taken  away  by  the  third  sec- 
tion. 

Under  this  construction  if  one  or  more  principals  be  discharged 
it  discharges  the  debt  in  proportion  as  the  number  of  principals 
discharged  bears  to  the  whole  number  of  principals.  If  all  the 
principals  be  discharged,  it  operates  to  discharge  all  the  sureties. 
If  one  of  the  sureties  be  discharged,  it  operates,  in  an  action  against 
the  other  sureties,  as  a  discharge  of  the  portion  of  that  surety  to 
pay  as  between  him  and  the  other  sureties,  according  to  the  num- 
ber of  sureties.  The  discjiar-ge-of  a  surety  docs  not  operate  to  dis- 
charge a  principal,  because  as  between  the  principal  and  surety  the 
poTttorrof  the  surety  to  pay  is  nothing.  If  we  adopt  the  construc- 
tion claimed  by  the  defendant,  that  the  statute  does  not  apply  to 


'526 


SURETYSHIP   DEFENSES 


/tjM. 


the  case  of  discharge  of  a  surety,  then  the  discharge  of  a  surety 
operates  as  a  discharge  of  the  whole  debt,  and  releases  not  only  the 
other  sureties  but  also  the  principals,  if  the  rule  at  common  law^  is 
as  the  defendant  claims.  We  can  not  suppose  the  legislature  in- 
tended that  a  creditor  might  discharge  one  of  two  principals  and 
enforce  the  collection  of  the  other  half  of  the  debt  against  the  other 
principal  or  against  the  sureties,  and  yet  if  he  discharged  a  surety 
he  should  have  no  remedy  against  the  principal  or  surety  for  the 
residue.  The  object  of  the  statute  was  to  allow  the  creditor  in  the 
collection  of  the  debt,  to  apportion  the  debt  among  those  jointly 
liable,  whether  principals  or  sureties,  according  to  the  duties  and 
obligations  of  the  debtors  respectively  as  among  themselves.  The 
construction  we  put  upon  it  will  generally,  if  not  in  all  cases,  effect 
that  object.  It  allows  the  creditor  to  deal  with  the  debtors,  respect- 
ively, in  the  same  manner  that  the  debtors  are  bound  to  deal  with 
each  other  in  reference  to  the  debt.  As  there  were  three  sureties 
on  the  note,  and  as  the  amount  paid  did  hot  exceed  one-third  of  the 
debt,  the  release  to  Hatch  operates  to  release  the  defendant  from 
one-third  of  the  debt  only,  and  the  county  court  properly  rendered 
judgment  for  the  plaintiff  for  the  other  two-thirds.  We  are  not 
prepared  to  say  whether,  independent  of  the  statute,  the  release 
to  Hatch  and  agreement  of  the  defendant  executed  at  the  same 
time,  would  have  had  any  greater  effect. 

Judgment  affirmed.  t       I'PLr 

Accord :   Walsh  v.  Miller,  51  Ohio  St.  462,  38  N.  E.  381.  A 

Where  the  creditor  by  valid  contract  extends  the  time  of  payment  as  to  one 

surety,  the  other  surety  is  discharged  to  £be  extent  of  the  loss  of  his  right 

to  contribution.     Ide  v.  Churchill,  14  Ohio  St.  372. 
Contra :    Sherman  County  v.  Nichols,  65  Nebr.  250,  91  N.  W.  198. 


,r^ 


SECTION  11.   DISCHARGE  BY  PAYMENT 
SPURGEON  v.  SMITHA  ET  ALy 

114  hid.  453,  17  N.  E.  105  (1888). 

Illliott,  J.:  The  appellant's  complaint  is  founded  on  a  prom- 
issory note  executed  by  the  appellees.  The  second  paragraph  of 
the  answer  of  the  appellees  avers  that  they  executed  the  note  as 
the  sureties  of  William  R.  Smitha ;  that  the  appellant  knew  the 
capacity  in  which  they  executed  the  note ;  that  their  principal  paid 
him\t\vo  hundred  and  forty  dollars;  that  the  appellant  thereuperr 
reloaned  the  remainder  of  the  sum  due  him  to  William  R.  Smitha, 
without  the  knowledge  or  consent  of  the  appellees. 

The  second  paragraph  of  the  answer  avers  the  fact  of  suretyship 
and  the  appellant's  knowledge,  and  also  avers  that  after  the  note 


DISCHARGE    BY    PAYMENT  527 


matured  the  principal  tendered  to  the  appellant  the  amount  of  the 
note;  that  he  accepted  two  hundred  and  forty  dollars  in  part  pay- 
ment of  the  note,  and  agreed  with  William  R.  Smitha  that  he  should 
retain  the  remainder,  paying  the  interest  thereon  for  one  year. 

The  third  paragraph  of  the  answer  is  substantially  the  same  as 
the  second. 

The  fourth  paragraph  is  a  plea  of  payment.  , 

The  contract  made  by  the  creditor  and  principal,  wherein  the  for-/ 
mer,  after  accepting  part  payment  of  the  debt,  reloaned  the  latter 
the  remainder  of  the  money  due,  released  the  sureties.  Sureties, 
as  is  well  known,  have  a  right  to  stand  upon  the  letter  of  their  con- 
tract, and  if  a  creditor  assumes  to  change  the  contract  he  releases 
them  from  liability.  According  to  the  averments  of  the  first  para- 
graph of  the  answer,  the  creditor,  knowing  that  the  appellees  were 
sureties,  made  a  radical  change  in  the  contract  by  reloaning  part 
of  the  money  due  him  to  the  principal,  and  he  has  lost  all  claim 
upon  the  sureties. 

The  averment  that  the  money  was  reloaned  to  the  principal  debtor 
for  one  year  is  the  averment  of  a  fact,  and  not  of  a  mere  conclusion. 
Taylor  v.  Lohman,  74  Ind.  418  (422).  The  word  "reloan"  de- 
scribes a  fact — the  act  of  lending  money  a  second  time,  or  oftener._ 
The  evidence  required  to  establish  the  fact  is  a  very,  different  thing 
from  the  fact  itself,  and  not  only  need  not  be  pleaded  but  can  not  be 
pleaded  without  a  violation  of  the  rules  of  pleading. 

The  act  of  the  creditor,  in  refusing  the  money  tendered  him  by 
the  principal  debtor,  released  the  sureties.  The  sureties  had  a  right 
to_rely  upon  the  performance  of  the  contract  by  the  principal  and 
upon  the  acceptance  of  performance  by  the  creditor.  This  much 
was  implied  in  their  contract,  and  as  the  creditor  declined  to  accept  U 
performance  when  tendered  him,  he  departed  from  the  contract, 
and  released  the  sureties.  Post  v.  Losey,  111  Ind.  75  (60  Am.  R. 
677.)  A  creditor  impliedly  undertakes  that  the  debt  may  be  paid 
at  maturity,  and  if  he  refuses  to  accept  the  money  due,  when  ten- 
dered him,  he  breaks  this  implied  undertaking,  and  loses  his  claim 
upon  the  sureties,  for  the  act  is  injurious  to  them. 

A  creditor  who  does  any  act  inconsistent  with  the  terms  of  the 
contract,  or  prejudicial  to  the  interests  of  sureties,  releases  them 
from  liability.  1  Story  Eq.  Jur.,  sections  324,  325.  The  refusal  to7  /tJL_ 
nccepj^the.  money  tendered  was,  it  is  very  clear,  inconsistenJL_willi 
the  terms  of  the  contract,  for  the  terms  of  the  contract  made  it  the* 
duty  of  the  creditor  to  accept  payment  when  tendered  him.  It  was 
also  an  act  prejudicial  to  the  interests  of  the  sureties,  for,  if  the 
creditor  had  accepted  payment,  they  would  have  been  effectually 
discharged.  The  authorities  fully  sustain  our  conclusion,  although 
the  reasoning  upon  which  some  of  the  courts  proceed  is  somewhat 
different  from  that  pursued  by  us ;  their  reasoning  having  for  its 
basis  the  theory  that  the  refusal  of  the  creditor  to   receive   the 


528  SURETYSHIP    DEFENSES 

money  when  tendered  is  a  fraud  upon  the  sureties.  Sears  v.  Van 
Dusen,  25  Mich.  351;  Donley  v.  Camp,  22  Ala.  659;  White  v.  Life 
Association,  63  Ala.  419  (35  Am.  Rep.  45)  ;  McQuesten  v.  Noyes, 
6  N.  H.  19;  Sailly  v.  Elmore,  2  Paige  497;  Joslyn  v.  Eastman,  46 
Vt.  258;  Johnson  v.  Ivey,  4  Cold.  608;  Hayes  v.  Josephi,  26  Cal. 
535 ;  Curiae  v.  Packard,  29  Cal.  194 ;  Brandt  Suretyship  and  Guar- 
anty, section  295 ;  Baylies  Sureties  and  Guarantors,  273 ;  Fell  Law 
of  Guaranty  and  Suretyship,  520. 

The  case  of  Clark  v.  Sickler,  64  N.  Y.  231,  is  not  supported  by 
authority,  and,  as  Mr.  Brandt  shows,  is  not  sound  on  principle.  In 
an  early  case  in  our  own  reports,  a  doctrine  very  different  from 
that  asserted  in  Clark  v.  Sickler,  supra,  was  declared. 

In  the  case  decided  by  this  court,  that  of  Musgrave  v.  Glasgow, 
3  Ind.  31,  the  court  said:  "If  Musgrave  had  actually  placed  the 
money  in  the  hands  of  Glasgow  for  the  payment  of  the  notes,  and 
afterward  received  it  back  from  him  as  a  new  loan,  under  the  cir- 
cumstances detailed,  it  can  not  be  doubted  that  this  would  have  been 
a  payment,  and  bond  would  have  been  discharged.  And  if  the 
parties  intended  to  waive  the  formality  of  passing  the  money  from 
one  to  the  other  and  back  again,  but  really  to  consider  the  trans- 
action as  a  payment  and  new  loan,  we  do  not  see  any  good  reason 
why  it  might  be  so  regarded  by  the  jury." 

It  seems  clear  to  us  that  where  the  creditor  declines  to  receive 
the  money  offered  him  he  elects  to  change  the  contract,  for  it  is  as 
much  part  of  the  contract  that  he  should  accept  the  money  wheiij 
tendered  as  that  the  debtor  should  pay  it.  Having  elected  to  de-/ 
part  from  the  contract,  he  really  made  a  new  one,  binding  only  the' 
party  consenting  to  it,  and  that  was  the  principal  debtor. 

In  the  case  of  Wilson  v.  McVey,  83  Ind.  108,  cited  by  the  appel- 
lant, this  court  referred  to  Mr.  Brandt's  work  and  approved  the 
rule  as  stated  by  him,  but  held  that  the  case  was  not  within  the  rule. 

The  court  gave  the  jury  this  instruction:     "It  is  a  well  settled 

rule  of  law  thali  sureties  are  not  to  be  held  beyond  the  precise  terms 

of  their  contract;  they  have  a  right  to  stand  upon  the  very  terms 

oi  their  contract,  and' if  they  do  not  assent  to  any  variation  of  it, 

]and  a  variation  is  made,  it  is  fatal." 

There  was  no  error  in  giving  this  instruction,  for  it  states  the 
law  correctly,  and  was  applicable  to  the  evidence. 

The  evidence  fairly  supports  the  verdict,  for  it  supplies  ample 
grounds  for  the  inference  that  the  money  was  offered  to  the  appel- 
lant by  the  principal  debtor,  and  that  the  offer  was  declined,  except 
as  to  part  of  the  debt,  and  the  debtor  requested  to  keep  the  re- 
mainder. One  of  the  witnesses  says  that  the  appellant  admitted 
that  the  principal  debtor  "had  a  big  roll  of  money  in  his  sleeve, 
and  pulled  it  out  and  offered  to  pay  the  balance."  Another  witness 
testified  that  the  appellant  said  to  him  that  "William  R.  Smitha  had 
paid  him  $200  and  interest,  and  told  him  that  he  had  the  rest  of 


f  I 

DISCHARGE    BY    PAYMENT  bZy 

the  money,  and  he,"  the  appellant,  "said  that  I  would  rather  he 
would  keep  the  money  and  pay  interest.  He,  Spurgeon,  said  it  was 
not  a  good  tender  when  he  took  out  the  money  and  offered  it  to 
him."  It  was  said  by  another  witness  "that  Spurgeon  told  William 
R.  Smitha  that  he  did  not  want  all  the  money ;  he  wanted  to  keep  it 
at  interest ;  that  he,"  William,  "offered  him  the  money,  but  he  said 
he  did  not  want  it,  that  he  would  rather  have  the  interest." 

It  is  true  that  the  evidence  does  not  show  a  strict  tender,  but  it^ 
does  show  a  waiver  of  a  formaLjender.     The  money  was  present! 
atlfwas  offered  the  appellant,  and  it  was  by  his  own  affirmative  act 
that  a  formal  tender  was  prevented.     If  there  had  been  no  produc^ 
tion  of  the  money,  and  nothing  more  tliaTTTTlTare  offer  to  pay  th^ 
debt,  it  may  be  that  the  offer  would  not  discharge  the  sureties ;  butT 
here  the  offer  was  accompanied  by  the  production  of  the  money, 
and  there  was  both  the  willingness  and  the  ability  to  make  immedi- 
ate payment.  .  _7  t 

We  do  not  hold  that,  a  mere  offer  to  pay  will  discharge  the 
sureties;  but  we  do  hold  "that  where  the  money  is  actually  produced 
and  an  unconditional  offer  made  to  pay  it  at  once  to  the  creditor, 


and"  he  refuses  to  accept  it,  and  asks  the  debtor  to  retain  it,  the/ 
sureties  are  discharged.  Where  the  money  is  actually  produced, 
and"  the  creditor  does  not  object  to  the  tender  but  requests  the 
debtor  to  retain  the  money,  he  can  not  subsequently  insist  that  the 
tencTer  w"as  insufficient.  I  The  act  of  the  creditor  makes  the  offer 
of  the  money  produced  by  the  debtor  a  sufficient  tender,  for  he  so 
characterizes  it  by  his  act. 
Judgment  affirmed. 

Accord:    Smith  v.  Old  Dominion  Building  &c.  Assn.,  119  N.  Car.  257,  26  S. 
E.  40. 


GILBERT  N.   HARDING,   RESPONDENT,   v.   WILLIAM 
TIFFT,  IMPLEADED,   ETC.,  APPELLANT 

75  N.  Y.  461  (1878). 

Appeal  from  judgment  of  the  general  term  of  the  Supreme  Court, 
in  the  fourth  judicial  department,  affirming  a  judgment  in  favor  of 
plaintiff,  entered  upon  a  verdict. 

This  action  was  upon  a  promissory  note)  for  .$500,  made  by  de- 
fendants  Skinkle  &  Howlet,  and  indorsed  Dy^deTendant  Tifft,  for 
their  accommodation.    The  answer  set  up  a  payment  of  $275. 
"  The  facts  appear  sufficiently  in  the  opinion. 

Rapallo,  J. :     The  point  upon  which  the  appellant  relies  for  the  A-- 
reversal  of  the  judgment  in  this  action  is,  that  on  the  trial  the  court 
excluded  the  evidence  of  the  fact  that  the  sum  of  $275  which  was 
34 — De  Witt. 


■ 


530 


SURETYSHIP    DEFENSES 


0 


paid  in  June,  1873,  by  Skinkle  to  the  plaintiff,  had  been  raised  by 
Skinkle  by  the  use  of  the  name  of  the  defendant  as  an  accommo- 
dation indorser,  for  the  purpose  of  being  applied  toward  the  pay- 
ment of  the  note  in  suit.  It  was  not  proved  or  offered  to  be  proved 
that  knowledge  of  this  fact  was  communicated  to  the  plaintiff. 
Skinkle  testified  that  in  the  spring  before  the  payment  he  told  the 
plaintiff  that  he  would  make  a  payment  on  a  $400  note,  which  the 
plaintiff  held  against  the  firm  of  Skinkle  &  Howlet  without  any 
indorser,  if  he  could  get  it  out  of  their  business,  and  that  he  would 
pay  on  the  note  in  suit,  indorsed  by  the  defendant,  if  he  got  it  on 
a  note  indorsed  by  him,  and  that  four  or  five  days  before  the  pay- 
ment he  told  the  plaintiff  that  he  had  found  where  he  could  get 
the  money  to  pay  on  the  note  in  suit.  But  he  testified  that  he  could 
not  say  that  he  told  the  plaintiff  how  or  on  whose  indorsement  he 
was  going  to  get  the  money,  and  he  does  not  say  that  he  ever  told 
plaintiff  how  he  got  it. 

Skinkle  further  testified  that  when  he  made  the  payment  he  told 
plaintiff  that  he  had  come  to  pay  $275  on  the  note  indorsed  by  the 
defendant.  That  plaintiff  took  the  money,  counted  it  and  took  out 
a  paper  which  the  witness  supposed  was  the  note,  and  wrote  on  the 
back  of  it.  The  plaintiff  contradicted  Skinkle's  statements  to  the 
effect  that  the  payment  was  made  on  the  note  in  suit,  and  gave 
>*'evidence  tending  to  show  that  it  was  made  on  the  $400  note;  he 
also  testified  that  at  the  time  of  the  payment  he  indorsed  it  on  the 
$400  note  in  presence  of  the  defendant,  but  that  he  did  not  know 
whether  the  defendant  noticed  the  note.  That  he  did  not  know 
that  the  money  had  been  raised  on  the  defendant's  indorsement. 


The  $400  note  was  produced  at  the  trial,  bearing  the  indorsement 
of  the  payment. 

It  is  conceded  that  if  the  money  paid  to  the  plaintiff  had  been 
raised  on  the  credit  of  the  defendant  for  the  purpose  of  being 
applied  on  the  note  indorsed  by  him,  and  this  fact  was  communi- 
cated to  the  plaintiff,  he  would  have  bound  himself  by  accepting  the 
money  to  apply  it  on  that  note.  But  in  the  absence  of  any  such 
knowledge,  it  is  claimed  on  the  part  of  the  plaintiff  that  he  had  the 
right  to  apply  the  money  paid  him  by  Skinkle,  to  the  unindorsed 
note,  unless  Skinkle  directed  that  it  be  applied  on  the  note  in  suit, 
and  that  the  fact  that  it  had  been  raised  by  Skinkle  on  the  defend- 
ant's indorsement,  if  unknown  to  the  plaintiff,  would  not  affect 
that  right. 

The  question  whether  Skinkle  directed  the  payment  to  be  applied 
on  the  note  in  suit,  as  stated  by  him  in  his  testimony,  was  submitted 
to  the  jury  and  their  verdict  establishes  that  no  such  direction  was 
given.  The  evidence  as  to  the  means  by  which  Skinkle  raised  the 
money  was  not  material  on  that  issue.  But  it  is  claimed  by  the  de- 
fendant that,  assuming  that  no  direction  was  given  by  Skinkle  to 
apply  the  payment  of  any  particular  note,  the  fact  that  the  money 


DISCHARGE   BY   PAYMENT  531 

_ 

had  been  raised  on  a  note  indorsed  by  the  defendant  for  the  ex- 
press purpose  of  being  paid  on  the  note  in  suit,  entitles  him  now  to 
have  it  thus  applied  notwithstanding  the  application,  actually  made 
by  the  plaintiff  at  the  time.     It  is  not  disputed  that  a  creditor  hav- 
ing two  demands  against  a  debtor  may  apply  a  payment  received 
nfrbm  the  debtor  to  either  of  the  demands,  at  his  election,  provided 
/no  dirertmn  iq  given  by  the  debtor,  .and  the  verdict  establishes  that 
vno  such  direction  was  given  in  the  present  case  to  apply  the  payment  f-j 
on  the  note  in  suit.     But  it  is  contended  that  the  right  of  the  cred- 
itor to  make  the  application  is  subject  to  the  condition  that  such  " 
application  be  not  inequitable,  and  such  is  the  language  used  in 
some  of  the  authorities  cited. 

The  equities  referred  to,  however,  are  usually  equities  existing 
between  the  debtor  and  creditor,  and  I  have  found  no  case  recogniz- 
ing those  arising  out  of  transactions  between  the  debtor  and  third 
persons,  of  which  the  creditor  has  no  notice.     The  mere  fact  that  - 
there  is  a  surety  for  one  of  the  debts,  does  not  preclude  the  cred- 
itor from  applying  a  payment  thus  received,  to  the  debt  for  which 
he  has  no  security.     (x\llen  v.  Culver,  3  Den.  285  ;  Stone  v.  Seymour, 
15  Wendt.  20.)     If  the  money  had  been  raised  by  the  debtor  by  the 
aid  of  indorsement  of  the  surety,  given  for  the  express  purpose  of  ' 
enabling  the  debtor  to  raise  funds  to  pay  the  secured  debt,  and  these t 
facts  had  been  communicated  to  the  creditor,  he  would  not  be  per-  ** 
mitted,  even  with  the  consent  of  the  debtor,  to  misapply  it.     But  it  j 
can  hardly  be  disputed  that  if  the  debtor  brought  money  thus  raised, 
to  the  creditor,  and  paid  it  to  him  expressly  upon  the  unsecured  i 
debt,  without  disclosing  the  means  by  which  the  money  had  been 
raised  or  any  agreement  as  to  its  use,  the  payment  would  be  valid. 
I  think  the  same  result   follows  when  the  debtor  by  omitting  to 
specify  on  which  debt  the  payment  is  to  be  credited,  authorizes  the 
creditor  to  apply  it  to  either,  and  the  creditor  exercises  this  option.^. 
The  money  belongs  to  the  debtor  and  where  the  creditor  is  ignorant 
of  any  duty  on  the  part  of  the  debtor  in  respect  to  it,  he  may  re- 
ceive and  apply  it  as  if  no  such  duty  existed.    If  no  application  had 
been  made  by  either  party,  and  the  duty  were  cast  upon  the  court 
of  making  the  proper  application,  the  equities  of  the  surety  would 
doubtlessly  be   considered.      But   where   the   application   has   been 
made  by  the  creditor,  in  accordance  with  his  apparent  legal  right, 
and  in  ignorance  of  any  fact  which  should  prevent  him  from  mak- 
ing such  application,  I  do  not  think  he  is  bound  to  change  it  on  the   -+ 
subsequent  disclosure  that  a  third  party  had  an  interest  in  having 
it  otherwise  applied  and  that  the  debtor  had  violated  a  duty  to  such 
third  party  in  not  directing  such  application.     The  application  made 
by  the  creditor  can  not  be  said  to  have  been  inequitable  if  no  facts 
were  brought  to  his  knowledge  at  the  time,  showing  that  he  ought 
not  to  make  it;  it  would  create  great  confusion  in  commercial  deal- 
ings, to  hold  that  after  the  lapse  of  time,  and  when  the  position 


532 


SURETYSHIP   DEFENSES 


of  the  parties  may  have  been  changed  by  such  a  payment,  the  transac- 
tion could  be  reopened  and  the  creditor  obliged  to  revive  an  unse- 
cured debt  which  he  had  treated  as  paid,  and  apply  the  payment  on  a 
debt  for  which  he  had  ample  security.  The  loss  if  any  sustained 
by  the  surety  in  such  a  case  results  from  the  act  of  his  principal 
in  whom  he  placed  confidence,  and  not  from  any  improper  act  of 
the  debtor.  It  does  not  appear  that  the  plaintiff  was  ever  appraised 
until  the  trial  of  this  action,  of  the  allegation  as  to  the  means  by 
.which  the  money  had  been  raised.     He /had  the  right  in. the  mean- 


lime  to  repose  upon  the  payment  of  the  unindorsed  nol£j  and  if  he 
had  attempted  to  collect  that,  the  fact  of  the  payment,  and  the  in- 
dorsement of  it  on  that  note  would  have  been  a  great  defense.  The 
defense  set  up  in  the  answer  in  this  action  and  testified  to  at  the 
trial  was  the  express  payment  on  the  note  in  suit.  If  that  was  true, 
the  evidence  as  to  means  whereby  Skinkle  raised  the  money  was 
immaterial,  and  it  was  excluded  on  that  ground.  But  in  any  aspect 
of  the  case  it  was  properly  excluded. 

The  judgment  should  be  affirmed. 

All  concur,  except  Miller  and  Earl,  JJ.,  absent. 

Judgment  affirmed. 


PETTY 


COOKE 


) 


L.  R.6  Q.  B.  790  (1871). 


Declaration  by  payee  against  maker  of  a  promissory  note  for 
£100,  with  interest,  payable  on  demand,  and  on  accounts  stated. 

Third  plea,  that  the  promissory  note  was  made  by  the  defendant 
and  one  S.  D.  Steele  jointly,  and  whereby  they  jointly  and  sev- 
erally promised  to  pay  the  moneys  therein  mentioned,  and  that  the 
accounts  in  the  said  declaration  alleged  to  have  been  stated  were 
so  stated  of  and  concerning  the  money  due  upon  the  promissory 
note,  and  that  the  money  found  to  be  due  and  the  moneys  due  upon 
the  note  are  the  same,  and  not  different  moneys ;  and  that  after  the 
note  became  due,  and  before  action,  S.  D.  Steele  satisfied  and  dis- 
charged the  plaintiff's  claim  by  payment. 

Fifth  plea,  on  equitable  grounds,  that  the  promissory  note  was 
made  by  the  defendant  and  one  S.  D.  Steele  jointly,  and  whereby 
they  jointly  and  severally  promised  to  pay  the  moneys  therein  men- 
tioned, and  that  the  accounts  alleged  to  have  been  stated  were  so 
stated  of  and  concerning  the  moneys  due  upon  the  promissory  note, 
and  no  other  money  whatsoever ;  and  the  money  found  to  be  due, 
and  the  moneys  due  upon  the  note  are  the  same  and  not  different 
moneys.  And  that  the  defendant  made  the  note  jointly  with  S.  D. 
Steele,  for  the  accommodation  of  S.  D.  Steele,  and  as  his  surety, 


^ 


DISCHARGE    BY    PAYMENT  533 

•oh  *  :  ^  • 

only  to  secure  a  debt  due  to  the  plaintiff  from  S.  D.  Steele  alone, 
of  which  the  plaintiff  at  the  time  of  the  making  of  the  note  and 
when  he  first  received  the  same,  had  notice ;  and  that  except  as 
aforesaid  there  never  was  any  value  or  consideration  for  the  makirg 
or  payment  of  the  note  by  the  defendant.  And  that  after  the  note 
became  due,  and  whilst  the  plaintiff  was  the  holder  of  the  note,  J 
S.  D.  Steele  paid  to  the  plaintiff,  and  the  plaintiff  then  received 
from  S.  D.  Steele  money  exceeding  the  amount  due  upon  the  note 
in  payment  of  the  same,  and  which  payment  then  operated  as  a  full 
satisfaction  and  discharge  of  the  plaintiff's  claim  upon  the  note,  ' 
as  against  the  defendant,  and  of  all  the  moneys,  causes  and  rights 
of  action  against  him  in  respect  thereof. 

Replication,  on  equitable  grounds,  to  the  third  and  fifth  pleas: 
that  the  payments,  in  the  pleas  respectively  mentioned,  were  one 
and  the  same  identical  payment,  and  not  other  or  different  pay- 
ments. And  that  S.  D.  Steele,  at  the  time  when  he  made  such  pay- 
ment, as  in  the  third  and  fifth  pleas  respectively  mentioned,  was  a 
trader  within  the  meaning  of  the  laws  and  statutes  concerning 
bankruptcy  in  insolvent  circumstances ;  but  without  any  knowledge 
of  such  circumstances  on  the  part  of  the  plaintiff;  and  S.  D.  Steele 
made  the  payment  to  the  plaintiff  voluntarily  and  without  any  pres- 
sure or  demand  on  him,  S.  D.  Steele,  for  the  payment  of  the  same ; 
and  such  payment  was  made  by  S.  D.  Steele  in  contemplation  of 
bankruptcy  or  of  a  quasi  bankruptcy,  by  the  execution  by  him,  S. 
D.  Steele,  of  a  trust  deed  for  the  benefit  of  his  creditor,  within  the 
true  intent  and  meaning,  and  according  to  the  clauses  of  the  Bank- 
ruptcy Act,  1861,  relating  to  trust  deeds  for  the  benefit  of  creditors, 
and  for  the  purpose  of  defeating  the  provisions  of  the  Bankruptcy 
Act,  1861,  and  the  other  statutes  concerning  bankrupts.  And  the 
plaintiff  was  then  wholly  ignorant  that  such  payment  was  so  made 
in  such  contemplation  as  aforesaid.  And  that  after  the  making 
of  such  payment  by  S.  D.  Steele  to  the  plaintiff,  a  deed  or  instru- 
ment of  assignment  was  duly  made  and  entered  into  between  the 
said  S.  D.  Steele,  as  debtor,  and  his  creditors,  and  certain  persons 
as  trustees  on  behalf  of  the  creditors  of  S.  D.  Steele,  being  a 
trust  deed  for  the  benefit  of  the  creditors  of  S.  D.  Steele,  within 
the  true  intent  and  meaning  and  according  to  the  clauses  of  the 
Bankruptcy  Act,  1861,  relating  to  trust  deeds  for  the  benefit  of 
creditors,  and  under  which  deed  or  instrument  (all  things  necessary 
in  that  behalf,  according  to  the  statutes  in  such  case  made  and  pro- 
vided, having  happened  and  been  done)  the  right  to  avoid  and  re- 
scind, as  a  fraudulent  preference,  the  payment  of  the  note  so  made 
by  S.  D.  Steele  to  the  plaintiff,  and  to  recover  from  the  plaintiff, 
the  amount  thereof  became  and  was  vested  in  the  trustees  as  afore- 
said. And  that  after  the  execution  and  registration  of  the  deed  or 
instrument,  and  after  the  right  to  avoid  and  rescind  the  payment 
by  S.  D.  Steele  to  the  plaintiff,  so  became  vested  in  the  trustees, 


534 


SURETYSHIP   DEFENSES 


they  did  elect  to  avoid  and  rescind,  and  did  avoid  and  rescind,  the 
payment  by  S.  D.  Steele  to  the  plaintiff,  and  called  upon  and  re- 
quired the  plaintiff  to  pay  the  money  so  received  by  him  from  S.  D. 
Steele  in  payment  of  the  note  to  them.  And  that  afterward,  and  in 
consequence  of  the  election,  and  so  being  called  upon  and  required 
by  the  trustees  to  pay  the  money  so  received  by  the  plaintiff  from 
S.  D.  Steele  in  payment  of  the  note,  he  paid  the  same  money  to  the 
trustees,  and  within  a  reasonable  time  after  such  payment  gave 
notice  thereof  to  the  defendant.  And  that  the  payment  by  S.  D. 
Steele  to  the  plaintiff  under  the  circumstances  stated  in  his  replica- 
tion, and  no  other,  was  and  is  the  identical  payment  mentioned  by  the 
defendant  in  the  third  and  fifth  pleas  respectively.  And  that  such 
payment  did  not  operate  in  satisfaction  and  discharge  of  the  causes 
of  action  in  the  declaration  mentioned,  as  in  the  said  pleas  respec- 
tively alleged. 

Demurrer,  and  joinder  in  demurrer. 

*Herschell,  in  support  of  the  demurrer :  The  replication  is  no 
^-answer  to  the  pleas.  iThe  creditor  by  accepting  payment  of  his 
j debt  from  the  principal" debtor,  has  discharged  the  surety.  Pay- 
ment  under  a  fraudulent  preference  is  not  void  but  voidable;  when 
the  payment  was  made  il  was  not  a  void  payment,  and  there  was  a 
time  when  the  surety  could  have  pleaded  it  as  a  discharge.  There 
was  also  an  interval  of  time  during  which  the  surety  had  lost  the 
right  to  step  in  and  become  the  creditor  of  the  principal  debtor ; 
the  surety  is  prejudiced  in  having  lost  that  right ;  the  payment  by 
the  principal  debtor  is  therefore  a  good  payment  so  as  to  discharge 
the  surety.  Any  contract  between  the  creditor  and  the  principal 
debtor  prejudicial  to  the  rights  of  a  surety  discharges  the  surety. 

Blackburn,  J. :  Is  there  any  case  which  says  that  an  innocent 
act  unconsciously  done  discharges  the  surety?  In  Hulme  v.  Coles, 
2  Sim.  12,  the  vice-chancellor  says:  "The  principle  of  discharging 
a  surety  by  the  giving  of  time  by  the  creditor  is  a  refinement  of  a 
court  of  equity,  and  I  will  not  refine  upon  it."  I  also  think  we 
ought  not  to  refine  upon  that  doctrine. 

The  contra rf  nf  suretyship  between  the  three  parties,  the  prin- 
cipal debtor,  the  creditor,  and  the  surety,  gives  certain  rights  to 
each,  and  one  of  the  rights  of  the  surety  is  to  step  in  and  pay  off 
the  creditor  and  take  his  place;  if  by  an  agreement  between  the 
i  principal,  and  the  creditor  the  surety  is  deprived  of  this  right  he 
is  discharged,  and  it  is  immaterial  whether  the  act  is  unconsciously 
\clone  or  not.  The  facts  in  Pritchard  v.  Hitchcock,  6  M.  &  G.  151 
(E.  C.  L.  R.  Vol.  46),  were  similar  to  the  present  case,  but  equita- 
ble pleas  could  not  at  that  time  be  pleaded,  so  that  the  equitable 
question  as  to  the  rights  of  the  surety  were  not  discussed. 

Forbes,  contra.     The  replication  is  a  good  answer  to  the  pleas. 


-. 

DISCHARGE    BY    PAYMENT  535 

The  surety,  at  the  time  of  taking  upon  himself  his  liability,  contracts 
that  the  creditor  shall  receive  valid  payment  of  his  claim  against 
the  principal  debtor.  If  there  is  no  valid  payment  the  contract  of 
the  surety  remains  unfulfilled,  and  the  surety  is  not  discharged.  A 
payment  which,  at  the  time  it  is  made,  contains  the  seeds  of  avoid- 
ance, and  it  is  subsequently  avoided,  is  not  a  valid  payment.  The 
creditor  did  nothing  inequitable  in  receiving  payment,  and  the  ac- 
ceptance of  the  money  was  apparently  not  an  act  prejudicial  to  the  I 
surety,  but  for  his  benefit.  In  Newington  v.  Levy,  Law.  Rep.  5 
C.  P.,  at  p.  612,  Wiles,  J.,  says :  "It  must  often  have  happened  that 
a  voluntary  payment,  good  at  the  time,  as  extinguishing  the  debt, 
has  been  rendered  void  by  matters  subsequent,  as  in  the  event  of 
bankruptcy  of  the  debtor,  and  an  election  by  his  assignees,  to  treat 
the  payment  as  a  fraudulent  preference,  and  it  has  never  been  suc- 
cessfully contended  that  the  debt  did  not  thereby  revive."  This 
passage  seems  to  be  decisive  of  the  case.  Moreover,  Pritchard  v. 
Hitchcock,  6  M.  &  G.  151  (E.  C.  L.  R.,  Vol.  46),  is  precisely  in 
point. 

Herschell,  in  reply. 

Blackburn,  J. :  It  seems  to  me  clear,  both  in  equity  as  well  as  I 
law,  that  the  plaintiff  is  entitled  to  sue  the  surety,  and  that  th^r^  *<=-  t 
nothing  stated,  in  the  pleadmgs~~which  has  discharged  the  latter  fron-kj 
liability.  As  early  as  Rees  v.  Barrington,  2  Ves.  540,  2  Wh.  &  T. 
L.  C.  (Eq.)  3d  ed.  887,  a  case  decided  in  1795  by  Lord  Lough- 
borough, it  was  held,  on  what  certainly  seems  artificial  reasoning, 
that  where  time  is  given  by  a  creditor  to  a  principal  debtor  without 
the  consent  of  the  surety,  the  surety  is  in  equity  discharged,  how- 
ever short  the  time  may  be,  on  the  ground  that  he  is  thereby  de- 
prived of  his  right  on  paying  off  the  creditor  to  sue  the  principal 
debtor.  Lord  Eldon,  also,  in  Samuel  v.  Hawarth,  3  Mer.  272,  cited 
in  the  notes  to  Rees  v.  Berrington,  2  Wh.  &  T.  L.  C.  (Eq.)  3d  ed. 
895,  says,  "The  rule  is  that  if  a  creditor  without  the  consent  of 
the  surety  gives  time  to  the  principal  debtor,  by  so  doing  he 
discharges  the  surety,  that  is,  if  time  is  given  by  virtue  of  positive 
contract,  between  the  creditor  and  the  principal — not  where  the 
creditor  is  merely  inactive.  And  in  the  case  put  the  surety  is  held 
to  be  discharged,  for  this  reason,  because  the  creditor  by  so  giving 
time  to  the  principal  has  put  it  out  of  the  power  of  the  surety  to 
consider  whether  he  will  have  recourse  to  his  remedy  against  the 
principal  or  not,  because  he,  in  fact,  can  not  have  the  same  remedy 
against  the  principal  as  he  would  have  had  under  the  general  con- 
tract. *  *  *  It  has  been  truly  stated  that  the  renewal  of  these 
bills  might  have  been  for  the  benefit  of  the  surety,  but  the  law  has 
said  that  the  surety  shall  be  the  judge  of  that,  and  that  he  alone 
has  the  right  to  determine  whether  it  is  or  is  not  for  his  benefit. 
The  creditor  has  no  right,  it  is  against  the  faith  of  his  contract  to 
give  time  to  the  principal,  even  though  manifestly  for  the  benefit 


536 


SURETYSHIP    DEFENSES 


of  the  surety,  without  the  consent  of  the  surety."  I  think  it  impos- 
sible to  read  the  principle  laid  down  by  Lord  Eldon  without  think- 
ing that  it  is  based  upon  highly  technical  reasoning,  however  accu- 
rate it  may  be.  It  is  clear  that  a  creditor  who  gives  time  to  a  prin- 
|  cipal  debtor  without  reserving  his  right  against  the  surety,  and 
alters  the  rights  of  the  surety,  discharges  him;  but  that  time  given 
by  a  creditor,  which  in  numberless  cases  does  not  injure  the  surety, 
should  discharge  him,  is  to  my  mind  not  justice,  although  estab- 
lished by  courts  of  equity.  The  ground,  however,  on  which  the 
doctrine  is  based,  is  that  by  giving  time  to  the  principal  debtor  the 
creditor  does  an  act  which  is  against' good  faith,  and  injurious  to 
the  surety ;  that  doctrine  can  not  apply  to  the  present  case,  for  the 
creditor  accepted  money  which  he  had  no  right  to  refuse,  and  the 
cceptance  of  which  he  had  no  means  of  knowing  would  injure  the 
surety.  He  therefore  did  no  act  injurious  to  the  surety,  and  the 
''.suretv  is  not  discharged.  I  think  Pritchard  v.  Hitchcock,  6  M.  & 
G.  15"  1  (  E.  C.  L.  R.,  Vol.  46),  is  in  point. 

Lush,  J. :  I  am  of  the  same  opinion.  The  rule  of  law  and  equity 
with  regard  to  the  rights  of  a  surety  is  the  same.  I  do  not  enter- 
tain the  slightest  doubt  that  the  act  of  the  creditor  which  dis- 
charges the  surety  must  be  an  act  involving  something  inequitable 
at  the  time  it  is  done  and  which  interferes  with  the  right  of  a 
surety ;  an  acceptance  of  money  from  the  debtor,  which  the  creditor 
thought  at  the  time  he  accepted  it  was  a  good  and  valid  payment, 
can  not  therefore  discharge  the  surety.  The  creditor,  under  pres- 
\  ent  circumstances,  could  not  have  refused  to  accept  the  money;  its 
1  acceptance  was  an  advantage,  not  an  injury,  to  the  surety. 

Hannen,  J.:  I  am  also  of  the  same  opinion.  Lord  Eldon  puts 
it  that  the  surety  is  discharged  when  the  creditor  has  done  anything 
which  is  "against  the  faith  of  his  contract."  How  can  it  be  against 
the  faith  of  his  contract  for  the  creditor  to  do  that  which  it  was  his 
duty  to  do,  namely,  to  receive  payment?  It  turned  out  afterward 
that  the  payment  was  not  a  good  payment,  and  therefore  the  surety 
is  not  discharged. 

Judgment  for  the  plaintiff. 

Accord:  Northern  Bank  v.  Farmers'  Nat.  Bank,  111  Ky.  350,  63  S.  W.  604; 
Harner  v.  Batdorf,  35  Ohio  St.  113. 


fr>^    ,        Z^'tj        z^" 


DISCHARGE    BY    PAYMENT  537 

CO; 

EMERINE  v.  O'BRIEN 
fttOkiriSt.  491  (1881). 

The  original  action  was  brought  by  the  plaintiff  in  error,  An- 
drew Emerine,  against  Thomas  O'Brien,  to  recover  the  amount  al- 
leged to  be  due  on  a  promissory  note,  executed  by  the  defendant  as 
surety  of  John  T.  Mitten.  The  petition  alleged,  in  substance,  "that 
on  the  15th  day  of  March,  1872,  the  plaintiff  loaned  to  one  John  T. 
Alitten,  $600;  that  Mitten  then  gave  the  plaintiff  his  promissory 
note  for  that  amount,  with  the  defendant,  Thomas  O'Brien,  as 
surety  thereon. 

"That  on  the  16th  day  of  May,  1872,  about  a  month  after  the 
note  became  due,  the  plaintiff  and  O'Brien  called  on  Mitten  for 
payment ;  that  Mitten  then  paid  $100  on  the  note  and  gave  a  re- 
newal note  for  $509,  the  balance  then  due  upon  the  original  note, 
and  that  Mitten  then  agreed  to  procure  one  Henry  Fleck  and  one 
Frank  Vogle  to  sign  the  renewal  note  as  his  sureties ;  that  Mitten 
signed  the  renewal  note  and  wrote  upon  it  the  names  of  Fleck  and 
Vogle  as  his  sureties,  without  their  knowledge  or  consent ;  that  this 
signing  was  done  not  in  the  presence  of  the  plaintiff,  and  that  the 
plaintiff  had  no  knowledge  or  suspicion  that  the  names  of  Fleck  and 
Vogle  were  forged  upon  the  note,  until  after  the  maturity  thereof." 

That  the  original  note  was  joint  and  several. 

Upon  this  state  of  facts,  the  plaintiff  asked  judgment  against 
O'Brien  for  the  balance  remaining  unpaid  on  the  original  note,  after 
deducting  all  actual  payments  made  upon  it. 

The  answer  admits  these  facts,  except  that  the  names  of  Fleck 
and  Vogle  were  forged,  and  as  a  defense  sets  up  that  the  trans- 
action in  which  the  renewal  note  was  given  did  not  occur  in  the 
presence  of  O'Brien,  and  that  he  knew  nothing  of  it  until  some  time 
after  the  renewal  note  had  been  given. 

This  alleged  defense  is  denied  in  the  reply. 

On  the  trial  Emerine  testified  as  follows : 

"On  the  16th  day  of  May,  1872,  I  went  with  the  defendant,  at  his;;1 
request,  from  Fostoria,  in  Seneca  county,  where  we  resided,  to 
Upper  Sandusky,  in  Wyandot  county,  Ohio,  to  collect  the  money 
on  a  note  I  then  held  against  John  T.  Mitten  and  the  defendant  for 
$600.  I  called  on  Mitten  for  the  money  due  on  the  note  and  he 
proposed  to  pay  me  $100  on  it,  and  wanted  thirty  days'  time  on  the 
remaining  $509  then  due  on  the  note,  and  offered  me  Henry  Fleck 
and  Frank  Vogle,  merchant  tailors,  as  sureties  with  him,  on  his 
note  for  $509,  at  thirty  days.  He  paid  me  $100,  and  I  renewed  the 
balance  with  said  Fleck  and  Vogle  as  his  sureties.  I  did  not  know 
or  suspect  that  the  names  of  Fleck  and  Vogle  were  forged.     The 


538  SURETYSHIP    DEFENSES 

original  note  of  Mitten  and  the  defendant  was  dated  March  15th, 
1872,  and  was  written  'we  or  either  of  us  promise  to  pay,'  etc. 

"I  found  that  the  names  of  Fleck  and  Vogle  were  forged  some 
time  in  December,  1872,  after  Mitten  had  run  away  and  left  the 
country. 

"The  defendant  and  Mitten  came  to  my  office  together,  when  1 
loaned  him  the  money,  on  the  15th  of  March,  1872;  O'Brien  spoke 
for  Mitten  and  wanted  $600  for  six  months ;  I  loaned  Mitten  $600, 
and  he  and  O'Brien  gave  their  note  for  it,  payable  about  the  1st 
of  April,  1872 ;  ( )'Brien  was  surety  on  this  note.  When  I  took  the 
new  note  for  $509,  at  Upper  Sandusky,  I  went  there  at  O'Brien's 
request ;  he  said  Mitten  was  not  worth  anything.  When  I  took 
the  new  note  O'Brien  and  Mitten  and  myself  were  present ;  there 
was  nothing  done  till  O'Brien  came  in;  this  occurred  in  Mitten's 
storeroom.  Mitten  went  out  of  the  store  to  get  the  signatures  of 
Fleck  and  Vogle  on  the  note,  and  in  a  few  minutes,  returned  with 
the  note  with  the  names  of  Fleck  and  Vogle  on  it.  I  had  no  suspi- 
cion of  any  forgery,  and  I  supposed  I  had  good  security  for  the 
balance  due,  so  I  delivered  up  the  old  note  to  the  defendant, 
O'Brien,  and  upon  his  demanding  it." 

Proof  was  given  that  the  names  of  Fleck  and  Vogle  were  forged, 
and  written  upon  the  note  by  Mitten. 

The  defendant  testified  as  follows: 

"I  told  Emerine  he  should  collect  the  money  from  Mitten,  as  I 
was  afraid  he  was  not  worth  anything ;.  and  I  hired  a  team  and 
took  Emerine  up  to  Upper  Sandusky  for  that  purpose,  when  he 
made  this  new  arrangement  with  Mitten.  I  was  not  present  when 
Emerine  and.  Mitten  made  the  new  arrangement.  Emerine  told 
me  to  stay  on  Main  street  and  he  would  go  and  settle  with  Mitten 
so  that  Mitten  and  I  wouldn't  quarrel.  I  stayed  out  about  half  an 
hour,  when  Emerine  came  and  called  me  into  the  store  and  said  to 
me,  T  have  settled  this  matter  with  Mitten,  and  you  have  nothing 
more  to  do  with  it.'  I  said,  'Then  I  am  free?'  and  he  told  me  'Yes.' 
I  said,  'Then  give  me  up  my  note,'  and  he  gave  me  my  note  and  I 
took  it  and  tore  it  up  into  small  'bits'  there  in  the  presence  of  Em- 
erine and  Mitten. 

"I  did  not  see  the  new  note  and  knew  nothing  about  how  he  had 
settled,  until  he  told  me  on  the  way  coming  home. 

"I  intended  to  get  an  attachment  for  Mitten  if  the  matter  was 
not  settled  that  day. 

"I  asked  Emerine  and  urged  him  to  go  and  collect  the  money 
from  Mitten.  I  did  not  see  Mitten  pay  any  money;  Emerine  called 
me  in  the  store.  I  did  not  see  Mitten  go  out  to  get  the  note  signed. 
Emerine  handed  my  note  to  me  when  I  demanded  it,  and  Mitten 
was  there.  Emerine  said  to  me,  in  Mitten's  store,  that  he  had  ar- 
ranged the  matter  with  Mitten  and  I  had  nothing  to  do  with  it  any 
more,  and  that  I  should  not  quarrel  about  it." 


DISCHARGE    BY    PAYMENT  539 

After  the  close  of  the  argument,  the  plaintiff  requested  the  court 
to  instruct  the  jury : 

"That  if  the  plaintiff  received  of  Mitten  $100  in  money,  and  his-  r 
note  of  $509,  with  Henry  Fleck  and  Frank  Vogle  as  sureties 
thereon,  and  for  the  money  thus  paid  and  the  note  signed  by  Mit- 
ten, Fleck  and  Vogle,  he  surrendered  and  gave  up  to  Mitten  and  to 
the  defendant  the  original  note,  signed  by  Mitten  and  the  defend- 
ant, and  if  the  signatures  of  Fleck  and  Vogle  to  the  note  for  $509 
were  forged  upon  said  note,  [the  plaintiff  should  recover  of  the  de- 
fendant the  amount  remaining  unpaid  on  the  original  note,  after-, 
deducting  from  the  full  amount  thereof  any  and  all  payments  made 
on  it  in  money." 

Wtiicn  instruction  the  court  refused  to  give,  but  instructed  the 
jury:  _    ' 

"That  if  the  defendant  took  the  plaintiff  to  Upper  Sandusky  in 
order  to  have  this  note,  .on  which  this  action  is  brought,  paid,  or  in 
some  manner  arranged,  so  that  he  (the  defendant)  should  be  no 
longer  liable  on  it ;  and  if,  after  the  parties  got  there,  the  defendant 
took  no  part  in  getting  this  new  note  spoken  of  in  'the  testimony, 
but  the  taking  of  it  was  the  work  of  the  plaintiff  only,  and  the  de- 
fendant had  no  knowledge  as  to  whether  the  names  of  the  sureties 
to  it  were  genuine  or  not ;  and  if,  after  this  new  note  was  taken, 
the  note  sued  on  in  this  case  was  delivered  up  to  the  defendant, 
as  canceled,  and  he)  then  acted  on  the  faith,  or  fact,  that  he  was  nor  ^, 
longer  liable  on  it,  then  the  plaintiff  can  not  recover,  and  the  defend-" 
ant  is  entitled  to  your  verdict,  although  the  names  of  the  sureties 
to  this  new  note  are  forged. 

"But  if  the  defendant  was  present  and  took  part  in  making  the 
arrangement  for  the  renewal  of  the  note,  and  knew  what  was  done, 
and  how  it  was  done,  then,  if  the  names  of  the  sureties  on  the  re- 
newal note  are  not  genuine,  the  plaintiff  is  entitled  to  recover."  To 
which  charge  and  instructions  so  given,  the  plaintiff  then  excepted. 

The  jury  found  for  the  defendant,  and  a  judgment  was  rendered 
for  him,  which  judgment,  on  error,  was  affirmed  by  the  district 
court. 

Boynton,  C.  J. :  The  court  of  common  pleas  gave  entirely  too 
much  importance  to  the  facts  which  were  held  sufficient  to  exon- 
erate the  defendant  from  liability  on  the  note  that  he  executed  as  \U* 
surety  for  Mitten.  The  fact  that  the  new  note  was  a  forgery  left 
the  liability  of  the  defendant  on  the  original  note,  to  the  extent  that 
the  new  note  was  received  in  payment,  entirely  unaffected,  unless 
there  were  circumstances  attending  the  taking  of  the  note,  that 
relieved  him  from  such  liability.  No  principle  is  better  settled  or 
rests  upon  more  solid  reason,  than  that  a  forged  note  delivered  in 
payment  does  not  operate  as  a  satisfaction  or  extinguishment  of 
an  antecedent  debt  or  demand.  Goodrick  v.  Tracy,  43  Vt.  314; 
Ritter  v.  Singmaster,  73  Pa.  St.  400;  Eagle  Bank  of  New  Haven 


540  SURETYSHIP   DEFENSES 

v.  Smith,  5  Conn.  71 ;  Markle  v.  Hatfield,  2  Johns.  455 ;  Cook  v. 
Barnes,  36  N.  Y.  520;  Scholefield  v.  Templer,  4  De  Gex  &  J.  429; 
Stedman  v.  Gooch,  1  Esp.  3 ;  2  Par.  on  Notes  and  Bills,  205 ;  2 
Daniel  on  Neg.  Onst.  1274.  The  circumstances  which  the  court  held 
sufficient  to  relieve  die  defendant  from  the  obligation  to  pay  the 
amount  remaining  due  on  the  original  note,  the  new  note  being  a 
forgery,  were,  that  he  took  the  plaintiff  to  Mitten's  residence  in 
order  to  have  the  note  pai'd,  or  in  some  way  arranged  so  that  he 
should  be  relieved  from  liability  thereon,  took  no  part  in  obtaining 
the  forged  note,  and  had  no  knowledge  whether  the  name  of  the 
sureties  thereon  were  genuine  or  not,  received  his  own  note  as  can- 
celed, and  thenceforward  acted  on  the  faith  that  he  was  no  longer 
liable  thereon.  The  fact  that  he  took  the  plaintiff  to  the  residence 
of  the  principal  maker  in  order  to  have  the  note  paid,  or  some  ar- 
rangement made  by  which  he  was  to  be  relieved  from  further  lia- 
bility for  the  debt,  is  of  no  importance  whatever,  unless  the  ar- 
rangement made,  or  the  new  relation  created,  was  a  valid  substi- 
tute for  the  original  debt.  Nor  is  it  of  the  slightest  importance 
that  the  defendant  took  no  part  in  obtaining  the  new  note.  It  is 
sufficient  to  preserve  his  liability,  that  the  new  note  was  void.  It 
is  not  pretended  that  the  plaintiff  agreed  to  take  the  genuine  note 
of  Mitten,  with  the  forged  signatures  of  Fleck  and  Vogle  as 
sureties,  in  payment  of  the  note  of  Mitten  and  the  defendant.  He 
,  supposed  and  had  the  right  to  suppose  that  their  signatures  were 
genuine.  There  was  an  implied  representation  that  the  note  was 
genuine  in  its  delivery.  In  Goodrick  v.  Tracy,  supra,  the  principal 
maker  of  the  note  sued  on  gave  a  new  note  with  a  forged  signature 
of  a  surety  thereon,  and  the  names  of  the  principal  maker  and 
surety  on  the  original  note  were  torn  therefrom.  The  surety  in 
that  case  had  no  part  in  obtaining  the  new  note,  yet  in  the  dispo- 
sition of  the  case  that  fact  was  not  even  noticed.  The  new  note 
being  void,  his  liability  on  the  original  note  was  held  to  be  in  no- 
wise affected. 

Nor  does  the  circumstance  that  the  note  in  the  present  case  was 
delivered  up  as  canceled  affect  the  defendant's  liability  thereon. 
This  was  done  in  the  belief,  which  the  facts  fully  justified,  that  the 
new  note  was  genuine.  That  it  was  not  genuine  was  not  the  fault 
of  the  plaintiff.  As  was  said  by  Lord  Kenyon,  in  Puckford  v.  Max- 
well (6  Term  52),  "In  cases  of  this  kind,  if  the  bill  which  is  given 
in  payment  does  not  turn  out  to  be  productive,  it  is  not  what  it 
purports  to  be  and  which  the  party  receiving  it  expects  it  to  be, 
and  therefore  he  may  treat  it  as  a  nullity  and  act  as  if  no  such  bill 
had  been  given  at  all."  | Payment  by  a  forged  note  or  check  is  not 
different  in  its  effect  upon  the  liability  of  the  debtor,  than  payment 
in  counterfeit  money.  The  pretended  payment  in  either  case  is  void, 
and  leaves  the  original  liability  subsisting,  although  the  written  evi- 
dence of  it  may  have  been  destroyed.     Hughes  v.  Wheeler,  8  Cow. 


DISCHARGE    BY    PAYMENT 


541 


77;  Arnold  v.  Crane,  8  Johns.  79;  Pierce  v.  Crafts,  12  Johns.  90; 
Young  v.  Adams,  6  Mass.  182;  Gerwig  v.  Sitterly,  56  N.  Y.  214; 
Alcott  v.  Rathbone,  5  Wend.  490. 

The  remaining  circumstance  to  which  the  court  seems  to  have  at- 
tached some  importance  is,  that  the  defendant  may  have  acted  on 
the  faith  that  he  was  no  longer  liable  on  the  note.  It  is,  no  doubt, 
a  well-settled  rule  of  law,  that  where  the  holder  of  the  note  assures 
the  surety  that  he  will  look  to  the  principal  maker  for  payment, 
knowing  the  surety  is  about  to  obtain  indemnity  against  his  liability 
and  who  is  thereby  induced  to  relax  or  forego  all  efforts  to  obtain  in- 
demnity, which  he  otherwise  would  have  obtained,  the  holder  of  the 
note  would  be  estopped  from  insisting  that  the  surety  continued 
bound  upon  the  note.  This  is  the  result  of  the  cases  cited  in  argu- 
ment by  counsel  for  the  defendant,  and  they  rest  wholly  upon  the 
doctrine  of  estoppel. 

It  is  clear  to  us,  that  the  present  case  does  not  fall  within  the 
principle  of  these  cases.  The  mere  fact  that  the  defendant  sup- 
posed the  note  signed  by  him  had  been  paid  by  the  new  note,  and 
that  he  acted  on  the  belief  that  he  was  discharged,  does  not  relieve 
him  from  liability.  It  was  evidently  the  understanding  of  both  par- 
ties that  the  new  note  was  genuine,  and  operated  as  payment  of  the 
first  one.  But  this  understanding  was  founded  on  a  mistake  of 
facts,  for  which  mistake  the  plaintiff  was  no  more  responsible  than 
the  defendant. 


natures  _of_  Fleck  and  Vogle  were  genuine,  tn"aii~of 

eing  a  maker  of  the  original  note,  and  (.'((nail)'  as 
s  Mitten,  it  was  his  duty  to  see  that  it  was  paid.  / 


It  was  no  more  the  duty  of  the  plaintiff  to/ascertaintihat^jjie^sig^-v 

the  defendant. 
liable  thereon—. 
\  Nothing  short  / 
of  payment,  or  a  release  by  a  valid  contract,  or  by  circumstances 
creating  ari~estoppel,  would  cancel  his  obligation  to  pay,  or  dis- 
charge him  from  liability.  The  facts  which,  if  found,  the  jury 
Avere^told  entitled  the  defendant  to  a  verdict,  considered  either 
separately  or  as  a  whole,  were  entirely  insufficient  to  defeat  the 
plaintiff's  right  to  recover,  on  his  establishing  the  fact  that  the  note 
received  in  payment  was  a  forgery. 

Judgment  reversed,  and    cause  remanded. 


Kj- 


Bank  v.  Buchanan,  87  Tenn.  32,  9  S.  W.  202. 


542 


SURETYSHIP    DEFENSES 


SECTION   12.    FAILURE  OF  CREDITOR  TO   DISCLOSE 
FACTS  AFTER  EXECUTION  OF  CONTRACT 


PHILLIPS  v.  FOXALL 

L.  R.  7  Queen's  Bench  666  (1872). 

The  judgment  of  Cockburn,  C.  J.,  Lush  and  Quain,  JJ.,  was  de- 
livered by 

Quain,  J.:  Only  the  opinion  delivered  by  Quain,  J.,  is  given. 
Tins  is  anj  action  brought  by  the  plaintiff  on  a  contract  whereby  the 
defendant  guaranteed  the  honesty  of  one  John  Smith,  a  servant 
in  the  employ  of  the  plaintiff,  to  the  extent  of  £50.'  The  contract 
is  set  out  in  the  declaration,  and  recites  the  employment  of  Smith, 
and  that  it  was  his  duty  to  collect  money  for  the  plaintiff  and  ac- 
count to  her  for  all  sums  of  money  so  collected ;  and  that  the  plain- 
,  tiff  had  before  the  giving  of  the  guaranty  held  in  her  hands  a  sum 
of  money  belonging  to  Smith,  as  a  security  for  the  proper  perform 


ance  by  Smith  of  his  duty,  which  sum  the  plaintiff  had  agreed  to 
pay  back  to  Smith  on  receiving  the  defendant's  guaranty.  The  dec- 
laration then  proceeds  to  allege  that  in  consideration  that  the  plain- 
tiff would  pay  over  to  Smith  the  money  so  held,  and  continue  him 
in  the  service  of  the  plaintiff  in  the  same  capacity  as  before,  the  de- 
fendant guaranteed  and,  promised  the  plaintiff  to  make  good  and 
be  answerable  to  her  for  any  loss  not  exceeding  £50,  which  she 
might  at  any  time  sustain  through  any  breachby  Smith  of  his  duty 
during  the  continuance  of  such  service ;  and  it  alleges  a  breach,  in 
the  usual  form,  that  Smith  failed  to  pay  over  sums  of  money  to  the 
amount  of  £50,  which  he  had  collected  on  behalf  of  the  plaintiff. 
In  answer  to  this  declaration  the  defendant  divides  the  time  dur- 
ing which  the  service  lasted,  and  during  which  the  loss  was  sus- 
tained, into  two  periods :  first,  from  the  8th  of  June,  1869,  when  the 
contract  was  made,  to  the  20th  of  November,  1869;  and,  secondly. 
from  the  last-mentioned  day  to  the  4th  of  April,  1871,  when  the 
service  terminated.  As  to  the  first  period,  the  defendant  admits  his 
liability  for  loss  incurred  by  the  acts  of  the  servant  during  that 
period,  and  he  had  paid  £10  into  court,  which  he  alleges  is  sufficient  to 
reimburse  the  plaintiff  for  such  loss.  As  to  the  second  period,  he 
pleads  a  plea  on  equitable  grounds,  which  is  to  this  effect :  that  the 
servant  had  been  guilty  of  defalcations  in  the  course  of  his  service 
between  the  8th  of  June  and  the  20th  of  November,  1869,  which 
the  plaintiff  had  discovered  on  the  latter  day,  and  that  the  plaintiff 
then,  without  communicating  such  discovery  to  the  defendant,  and 
while  the  defendant  was  ignorant  of  the  servant's  dishonesty,  agreed 
with  the  servant  to  continue  him  in  her  employ  as  before,  and  the 


FAILURE    OF    DISCLOSURE  543 


servant  on  the  other  hand  agreed  to  pay  to  the  plaintiff  £3  a  month 
on  account  of  the  previous  defalcations.  The  plea  then  alleges  that 
the  servant  was  continued  in  the  plaintiff's  service  accordingly  on 
these  terms.  The  plea  then  goes  on  to  state  that  the  loss  in  respect 
of  which  the  plea  is  pleaded  was  occasioned  by  acts  of  dishonesty 
committed  by  the  servant  during  the  continuance  of  the  service,  as 
so  agreed  on,  after  the  20th  of  November,  and  between  that  time 
and  the  termination  of  the  service,  the  defendant  during  that  time 
being  wholly  ignorant  of  the  previous  defalcations  of  the  servant ; 
and  that  by  reason  of  the  plaintiff  not  having  given  the  defendant 
notice  of  such- defalcations  he  was  prevented  from  revoking  the 
guaranty. 

To  this  plea  the  plaintiff  has  demurred,  and  the  question  argued 
before  us  was  whether  the  plea  afforded  a  good  defense  to  so  much 
of  the  cause  of  action  as  it  was  pleaded  to;  namely,  the  loss  occa- 
sioned by  the  defalcations  of  the  servant  committed  between  the 
20th  of  November  and  the  end  of  the  service. 

We  are  of  opinion  that  the  plea  is  good. 

We  think  that  linthe_case  of  a  continuing  guaranty  for  the  hon- 
esty of  a  servant,Tf  the  master  discovers  that  the  servant  has  been 
guilty  of  acts  of  dishonesty  in  the  course  of  the  service  to  which 
the  guaranty  relates,  and  if  instead  of  dismissing  the  servant,  as 
he  jmay  do  at  once  and  without  notice,  he  chooses  to  continue  in 
his  employ  a  dishonest  servant,  without  the  knowledge  and  eminent 
of  the  surety,  express  or  implied,  he  can  not  afterward  have  re-  j 
course  to  the  surety  to  make  good  any  loss  which  may  arise  from 
the  dishonesty  of  the  servant  during  the  subsequent  service. 

Suppose  that  the  state  of  facts,  which  has  arisen  here  in  the 
course  of  the  service,  had  existed  before  or  at  the  time  when  the 
guaranty  was  given,  in  other  words,  that  the  servant  had  previously 
committed  defalcations  in  the  plaintiff's  service,  and  had  agreed  to 
repay  them  at  the  rate  of  £3  a  month,  and  that  this  fact  had  been 
concealed  by  the  master  from  the  defendant  when  he  gave  the 
guaranty,  it  can  not,  we  think,  be  doubted  that  a  fraud  would  have 
been  committed  on  the  surety  which  would  have  relieved  him  from 
all  liability  on  the  contract.  This,  we  think,  is  established  by  the 
judgments  in  the  House  of  Lords  in  Smith  v.  Bank  of  Scotland, 
and  in  Railton  v.  Mathews.  In  the  former  case  Lord  Eldon  says : 
"If  a  man  found  that  his  agent  had  betrayed  his  trust,  that  he 
owed  him  a  sum  of  money,  or  that  it  was  likely  he  was  in  debt :  if 
under  such  circumstances  he  required  sureties  for  his  fidelity, 
holding  him  out  as  a  trustworthy  person,  knowing  or  having  ground 
to  believe  that  he  was  not  so,  then  it  was  agreeable  to  the  doctrines 
of  equity,  at  least  in  England,  that  no  one  should  be  permitted  to  , 
take  advantage  of  such  conduct,  even  with  a  view  to  security 
against  future  transactions  of  the  agent."  In  the  latter  case  Lord 
(Tottenham  cites  with  approbation  the  opinion  of  Lord   Eldon  in 


544  SURETYSHIP   DEFENSES 

Smith  v.  Bank  of  Scotland ;  and  Lord  Campbell  adds,  "If  the  de- 
fendants had  facts  within  their  knowledge  which  it  was  material 
the  sureties  should  be  acquainted  with,  and  which  the  defenders 
did  not  disclose,  in  my  opinion  the  concealment  of  those  facts — the 
undue  concealment  of  those  facts — discharge  the  surety." 

We  do  not  think  that  the  principles  of  law  as  laid  down  in  these 
cases  have  been  materially  altered  by  the  decision  of  the  House  of 
Lords  in  the  subsequent  case  of  Hamilton  v.  Watson,  12  CI.  &  F. 
109,  or  by  that  of  the  Court  of  Exchequer  in  the  North  British  In- 
surance Co.  v.  Lloyd.  In  the  former  case  the  principle  above  men- 
tioned was  not  denied,  but  the  question  that  arose  was  as  to  its  ap- 
plication to  the  facts  of  that  particular  case;  and  Lord  Campbell 
states  that  the  criterion  for  the  necessity  of  voluntarily  disclosing 
any  particular  fact  in  cases  of  this  kind  may  be,  whether  the  fact 
not  communicated  was  that  one  could  "not  naturally  be  expected  to 
have  taken  place  between  the  parties  who  are  concerned  in  the 
transaction."  In  North  British  Insurance  Co.  v.  Lloyd,  the  Court 
of  Exchequer  held  that  the  rule  as  to  the  effect  of  concealment  in 
marine  insurance  cases  did  not  apply  to  contracts  of  suretyship, 
and  that  in  the  latter  cases  the  concealment  must  be  fraudulent  in 
order  to  avoid  the  contract.  In  Lee  v.  Jones,  the  majority  of  the 
judges  in  the  Exchequer  Chamber  held  that  a  concealment  by  the 
creditor,  that  at  the  time  of  the  contract  the  principal  debtor  was 
already  indebted  to  the  creditor  in  a  considerable  amount — of  which 
the  surety  was  ignorant — was  evidence  to  go  to  the  jury  of  such  a 
fraud  on  the  surety  as  would  discharge  him  from  liability.  It  must 
depend  (as  observed  by  Blackburn,  J.,  in  the  case  last  cited)  "upon 
the  nature  of  the  transaction'  in  every  case,  whether  the  fact  not 
disclosed  is  such  that  it  is  impliedly  represented  not  to  exist."  We 
can  not  doubt  but  that  previous  acts  of  dishonesty  by  the  servant 
in  the  same  service,  known  to  the  master,  would  be  such  a  fact, 
and  if  concealed  from  the  surety  would  avoid  the  contract.  Vide 
Story's  Equity  Jurisprudence,  Vol.  I,  215  and  324. 

If,  therefore,  it  is  correct,  as  we  think  it  is  on  these  authorities, 
to  sav  that  such  a  concealment  as  is  here  pleaded,  if  it  had  been 
practiced,  at  the  time  when  the  contract  was  first  entered  into, 
would  have  discharged  the  surety,  we  think  that  in  the  case  of  a 
continuing  guaranty  a  similar  concealment  made  during  the  prog- 
ress of  the  contract  ought  to  have  a  similar  effect  as  regards  the 
\  future  liability  of  the  surety  unless  his  assent  has  been  obtained, 
1  after  knowledge  of  the  dishonesty,  that  his  guaranty  should  hold 
good  during  the  subsequent  service.  One  of  the  reasons  usually 
given  for  holding  that  such  a  concealment  as  we  are  here  consider- 
ing would  discharge  the  surety  from  his  obligations  is,  that  it  is 
only  reasonable  to  suppose  that  such  a  fact,  if  known  to  him,  must 
necessarily  have  influenced  his  judgment  as  to  whether  he  would 
enter  into  the  contract  or  not ;  and  in  the  same  manner  it  seems  to 


FAILURE   OF   DISCLOSURE  545 

us  equally  reasonable  to  suppose  that  it  never  could  have  entered  into 
the  contemplation  of  the  parties  that,  after  the  servant's  dishonesty 
in  the  service  has  been  discovered,  the  guaranty  should  continue  to 
apply  to  his  future  conduct,  when  the  master  chose  for  his  own  pur- 
pose to  continue  the  servant  in  his  employ,  without  the  knowledge  or 
assent  of  the  surety.  If  the  obligation  of  the  surety  is  continuing,  wej" 
thinkf_the__obligation  of  the  creditor  is  equally  so,  and  that  the  rep- 
resentation and  understanding  on  which  the  contract  was  originally 
founded  continue  to  apply  to  it  during  its  continuance  and  until 
its  termination,      .j^ 

If  the  guaranty  at  its  inception  was  founded,  as  suggested  by 
Lord  Eldon  in  Smith  v.  Bank  of  Scotland,  on  the  trustworthiness 
of  the  servant,  as  far  as  that  was  known  to  both  parties,  as  soon  as 
his  dishonesty  is  discovered  and  becomes  known  to  the  master  the 
whole  foundation  for  the  continuance  of  the  contract,  as  regards 
the  surety,  fails ;  and  it  seems  to  us  in  accordance  with  the  plainest 
principles  of  equity  and  fair  dealing  that  the  master  should,  on 
making  such  discovery,  either  dismiss  the  servant,  or  if  he  chooses 
to  continue  him  in  his  employ  without  the  knowledge  or  assent  of 
the  surety,  that  he  must  himself  stand  the  risk  of  loss  arising  from 
any  future  dishonesty.  "It  is  the  clearest  and  most  evident  equity," 
says  Lord  Loughborough,  in  Rees  v.  Barrington,  2  Ves.  540,  543, 
"not  to  carry  on  any  transaction  without  the  knowledge  of  him 
(the  surety)  who  must  necessarily  have  a  concern  in  every  trans- 
action of  the  principal  debtor.  You  can  not  keep  him  bound  and 
transact  his  affairs  (for  they  are  as  much  his  as  your  own)  without 
consulting  him.  You  must  let  him  judge  whether  he  will  give  that 
indulgence  contrary  to  the  nature  of  his  engagement."  Thus,  in 
the  present  case,  the  conduct  of  the  master  in  retaining  the  servant 
in  his  employ,  when  he  might  have  discharged  him  for  dishonesty, 
seems,  in  the  words  of  Lord  Loughborough,  an  indulgence  granted 
to  the  servant  without  the  assent  of  the  surety,  and  contrary  to  the 
nature  of  his  engagement.  The  time  at  which  the  surety  will  be 
discharged  from  further  liability  in  cases  of  this  kind  will  vary 
according  to  the  circumstances  of  each  case ;  but  we  intend  our 
judgment  to  apply  only  to  cases  like  the  one  now  before  the  court, 
where  the  master,  having  the  power  of  at  once  discharging  the  ser- 
vant for  dishonesty,  deliberately  continues  him  in  his  service  after 
he  becomes  aware  of  the  dishonesty,  and  without  the  assent  or 
knowledge  of  the  surety. 

No  case  directly  in  point,  either  in  favor  of  this  plea  or  against 
it,  has  been  cited  before  us.  In  Peel  v.  Tatlock,  1  B.  &  P.  419, 
423;  and  see  p.  421,  a  question  arose  how  far  the  concealment  of 
the  servant's  embezzlement  for  three  years  after  the  termination 
of  the  service  would  affect  the  liability  of  the  surety.  No  decision 
was,  however,  given  on  that  point,  and  the  case  contains  only  a 
35— De  Witt. 


546 


SURETYSHIP    DEFENSES 


dictum  of  Eyre,  C.  J.,  that  an  industrious  (by  which  we  presume 
he  meant  an  intentional  or  fraudulent)  concealment  might  have  an 
effect  on  the  liability  of  the  guarantor.  In  Smith  v.  Bank  of  Scot- 
land, 1  Dow,  at  p.  287,  there  is  an  observation  of  Lord  Redesdale, 
made  in  the  course  of  the  argument,  which  has  a  closer  bearing  on 
the  present  question.  In  that  case  Paterson,  the  bank  agent,  seems 
to  have  given  security  to  the  bank,  apparently  at  the  commence- 
ment of  his  service;  afterward,  and  while  the  service  continued, 
and  after  his  accounts  had  been  inspected  and  reported  on  by  an  of- 
ficer of  the  bank,  he  was  called  on  to  give  additional  security,  and 
Smith,  the  appellant,  gave  a  bond  on  such  additional  security. 
Smith  raised  an  action  of  reduction  of  this  bond,  and  in  that  action 
insisted  on  his  right  to  inspect  the  above  report  of  the  officer  of  the 
bank.  On  this  Lord  Redesdale  observed:  "Supposing  the  report 
showed  that  Paterson  was  no  longer  trustworthy,  and  the  bank  had 
trusted  him  notwithstanding,  upon  decided  cases  the  prior  security 
would  be  discharged  from  all  consequences  of  subsequent  trans- 
actions, as  contrary  to  the  faith  of  the  contract.  And  then  it  might 
be  a  question  what  bearing  this  circumstance  might  have  on  the  new 
sureties."  The  cases  to  which  Lord  Redesdale  alludes  are  not 
mentioned,  but  it  seems  pretty  clearly  to  have  been  his  opinion  that 
if  the  master  discovers  the  dishonesty  of  his  servant  during  the 
service,  and  afterward  continues  to  trust  him  notwithstanding,  the 
surety  for  the  servant  would  be  discharged  from  all  liability  for 
subsequent  losses.  In  the  case  of  Shepherd  v.  Beecher,  2  P.  Wms. 
288,  290,  before  Lord  Chancellor  King,  a  father,  on  binding  his 
son  apprentice,  gave  a  bond  for  his  fidelity.  Some  years  afterward 
the  apprentice  embezzled  i200  of  the  master's  money,  of  which 
the  master  gave  notice  to  the  father,  and  demanded  the  money.  The 
father  paid  the  amount,  but  sent  a  letter  requesting  the  master  not 
to  trust  the  apprentice  with  cash  in  the  future,  or  at  least  to  do  so 
very  sparingly.  The  apprentice  continued  afterward  with  the  mas- 
ter for  several  years,  and  committed  further  embezzlement,  of 
which  the  father  had  no  notice  until  two  years  after  the  expiration 
of  the  apprenticeship,  when  the  bond  was  put  in  suit.  The  Lord 
Chancellor  held  that  the  father  continued  bound,  stating  apparently 
as  the  ground  of  his  judgment  "that  the  father  ought  not  to  have 
satisfied  himself  with  sending  the  letter  and  taking  no  further  care 
of  the  matter,  but  have  endeavored  to  make  some  end  with  the 
master,  and  to  have  got  up  the  bond."  This  decision  seems  to  us 
to  rest  on  the  fact  that  the  father,  instead  of  taking  measures  to 
have  the  bond  delivered  up,  as  he  might  have  done,  assented  to  con- 
tinue bound  after  he  had  notice  of  the  first  embezzlement,  and 
that  the  other  embezzlements  were  not  actually  ascertained  until 
after  the  expiration  of  the  apprenticeship. 

It  is  well  established  that  a  surety,  after  he  has  been  discharged 
from  his  contract  by  the  act  of  the  creditor,  may  revive  his  liabil- 


FAILURE    OF    DISCLOSURE  547 

ity  by  a  subsequent  promise  or  assent.  Mayhew  v.  Crickett,  2 
Swan.  185 ;  Smith  v.  Winter,  4  M.  &  W.  454.  In  that  present  plea 
it  is  alleged  as  a  conclusion  of  law  that,  by  reason  of  the  conceal- 
ment, the  defendant  was  prevented  from  revoking  the  guaranty 
and  compelling  Smith  to  pay  the  money  for  which  the  defendant 
was  liable.  The  discharge  of  the  surety  in  the  present  case  seems 
to  us  to  arise  rather  out  of  the  nature  and  equity  of  the  contract 
between  the  parties  than  upon  any  assumed  right  of  revocation. 
We  think  the  surety  is  discharged  unless  he  assents  or  agrees,  after 
he  has  had  knowledge  of  the  dishonesty,  that  the  guaranty  shall 
holcLgood  for  the  subsequent  service;  but,  as  a  revocation  of  the 
guaranty  as  soon  as  the  dishonesty  has  come  to  his  knowledge  will 
be  the  best  evidence  of  dissent,  whether  his  discharge  from  the  con- 
tract is  founded  on  express  revocation,  or  want  of  assent  after  no- 
tice of  the  dishonesty,  seems  rather  a  question  of  words  than  of 
substance. 

In  Parsons  on  Contracts,  Vol.  II,  p.  31,  the  rule  as  to  the  right 
to  revoke  a  guaranty  like  the  present  is  thus  stated:     "If  the  guar- 
anty be  to  indemnify  of  misconduct  of  an  officer  or  servant,  the 
promise   is   revocable,   provided   the   circumstances   are    such   that, 
when  it  is  revoked,  the  promisee  may  dismiss  the  servant  without 
injury    to    himself    on    his    failure    to   provide    new    and    adequate 
sureties."     No  judicial  authority  is  cited  in  support  of  this  proposi- 
tion and  therefore  it  can  only  be  cited  as  the  opinion  of  the  writer. 
It  will  be  seen  that  he  confines  r.he  right  of  the  surety  to  revoke  his 
guaranty  to  those  cases  where  the  master  may,  on  the  revocation 
being  made,  dismiss  the  servant  without  injury  to  himself.     The 
present  case  is  distinctly  within   the  limitation,   and  there  can  be-y 
no  doubt  but  that  the  right  of  the  master  at  once  to  discharge  the/ 
servant   on_discovering   his    dishonesty,    and    so    place   himself    irif- 
statu  quo,  is  a  most  material  ingredient  in  the  consideration  of  theJ 
question. 

Since  the  argument  of  this  case,  the  judgment  of  Malins,  V.  C, 
in  Burgess  v.  Eve,  Law  Rep.  13  Eq.  450,  458,  has  been  published. 
The  chief  question  in  that  case  was  whether  the  contract  before  the 
court  was  or  was  not  a  continuing  guaranty ;  but  in  the  course  of 
his  judgment  the  Vice-Chancellor  expresses  an  opinion  which  di- 
rectly applies  to  the  present  case.  "My  opinion  is"  (he  says),  "and 
I  have  no  hesitation  in  expressing  it,  that  a  person  who  gives  a 
guaranty  would  have  a  right  to  say  to  the  person  taking  it,  'You 
will  continue  at  your  own  peril  to  employ  the  person  on  whose 
behalf  I  gave  the  guaranty,'  provided  that  the  clerk  or  other  person 
has  been  guilty  of  embezzlement  or  gross  misconduct,  or  has  turned 
out  to  be  unworthy  of  the  confidence  reposed  in  him  by  the  per- 
sons giving  that  guaranty  for  him.  If  the  employer  under  such 
circumstances  refused  to  give  the  guaranty  up,  the  person  giving 
it  would  have  a  right  to  file  a  bill  in  this  court,  and  in  my  opinion 


548 


SURETYSHIP    DEFENSES 


would  succeed  in  the  contest,  because  the  court  would  direct  the 
bond  to  be  delivered  up  to  be  canceled."  And  the  same  opinion  is 
repeated  in  other  parts  of  his  judgment.  It  may  be  said  that  this 
opinion  was  not  necessary  for  the  decision  of  the  case  before  the 
Vice-Chancellor,  and  is  not,  therefore,  a  binding  authority.  That 
may  be  so,  but  the  opinion  seems  to  us  to  be  founded  on  equity 
and  good  sense,  and  as  such  we  adopt  it  as  directly  applicable  to 
the  case  now  before  us.  For  these  reasons  we  think  that  the  plea 
is  good,  and  that  the  defendant  is  entitled  to  our  judgment. 

Accord:   Connecticut  Mut.  Life  Ins.  Co.  v.  Scott,  81  Ky.  540. 


WATERTOWN  FIRE  INSURANCE  COMPANY  v. 
W.  SIMMONS  ET  AL. 

131  Mass.  85,  41  Am.  Rep.  196  (1881). 


GEORGE 


Morton,  J. :  This  is  an  action  against  the  defendants  as  sure- 
ties upon  a  bond  given  by  George  L.  Dix,  conditioned  for  the 
faithful  performance  of  his  duties  as  agent  of  the  plaintiff,  "ac- 
cording to  the  by-laws,  rules  and  regulations  of  said  company." 

One  of  the  by-laws  of  the  company  required  that  the  agents 
should  render  monthly  accounts  and  should  pay  each  month  the 
balance  due  to  the  company.  It  appeared  that  Dix  rendered  his 
monthly  accounts  regularly,  but  that  in  December,  1877,  he  failed 
to  pay  the  whole  balance  due  by  him;  and  that  thereafter  his  in- 
debtedness to  the  company  increased  from  month  to  month  until 
his  death  in  March,  1879,  when  he  owed  a  balance  larger  than  the 
penal  sum  of  the  bond.  The  plaintiff  did  not  notify  the  sureties 
of  his  default  until  after  his  death.  The  defendants  contend  that 
they  were  discharged  from  their  liability  as  sureties  by  these  facts. 

Ijt  is  too  well  settled  to  be  questioned,  that  the  delay  of  the  plain- 
tiff to  collect  the  monthly  payments  due  by  Dix  would  not  of  itself 
discharge  the  sureties.  Mere  delay  by  the  creditor  to  proceed 
against  the  debtor,  unaccompanied  by  fraud  or  an  agreement  to 
give  time,  does  not  discharge  the  sureties.  Hunt  v.  Bridgham,  2 
Pick.  581.  The  defendants  contend  that  the  by-law  being  referred 
to  in  the  bond,  "amounts  to  a  contract  between  the  plaintiff  and  the 
sureties  that  the  plaintiff  will  not  knowingly  permit  the  agent  to 
depart  from  the  duty  there  recited."  The  sole  object  of  the  bond 
was  to  secure  the  performance  by  Dix  of  his  duties  under  the  by- 
laws, and  they  are  referred  to  only  for  the  purpose  of  denning 
these  duties.  They  can  not  be  construed  as  importing  a  stipulation 
with  the  sureties  that  the  plaintiff  shall  cause  them  to  be  observed 
and   kept,   under  the  penalty   of   discharging  the   sureties.      Such 


FAILURE    OF   DISCLOSURE  549 

by-laws  are  directory  merely,  and  a  failure  to  observe  them  by  the 
plaintiff  or  its  managing  officers  will  not  discharge  the  sureties. 
Amherst  Bank  v.  Root,  2  Met.  522;  Locke  v.  United  States,  3 
Mason  446. 

But  the  principle  ground  of  defense  is  that  it  was  the  duty  of 
the  plaintiff,  within  a  reasonable  time,  to  notify  the  sureties  of  any 
default  of  the  agent,  and  that  the  failure  to  do  so  was  laches  which 
discharge  them.  It  may  be  questioned  whether,  if  there  was  neg- 
ligence of  the  other  officers  or  agents  amounting  to  laches,  the  cor- 
poration would  be  affected  by  it,  as  the  object  of  the  bond  was  to 
give  the  stockholders  the  double  security  of  the  supervision  of  its 
officers  and  the  obligation  of  the  sureties.  Amherst  Bank  v.  Root, 
ubi  supra.  But  treating  this  case  as  if  it  were  the  case  of  an  in- 
dividual obligee,  we  are  of  opinion  that  there  is  no  rule  of  law 
which  makes  it  a  duty  which  the  creditor,  under  the  circumstances 
of  this  case,  owes  to  the  surety,  either  to  dismiss  its  agent  or  to  no- 
tify the  surety  of  his  default.  If  a  creditor  does  any  act  which  in- 
juriously affects  the  situation  and  rights  of  the  surety,  such  as  ,. 
giving  time  to  the  debtor,  or  relinquishing  surety  which  he  holds 
for  the  debt,  he  discharges  the  surety  either  in  whole  or  pro  tanto. 
But  the  creditor  owes  no  duty  of  active  diligence  to  take  care  of 
the  interest  of  the  surety.  It  is  the  business  of  the  surety  to  see 
that  his  principal  performs  the  duty  which  he  has  guaranteed,  and 
not  that  of  the  creditor.  Wright  v.  Simpson,  6  Ves.  714 ;  Adams 
Bank  v.  Anthony,  18  Pick.  238;  Taft  v.  Gifford,  13  Met.  187; 
Tapley  v.  Martin,  116  Mass.  275.  [The  surety  is  bound  to  inquire7 
for  himself,  and  can  not  complain  that  the  creditor  does  not  notify 
him  of  the  state  of  the  accounts  between  him  and  his  agent,  for 
whom  the  surety  is  liable.  Mere  inaction  of  the  creditor  will  not 
discharge  the  surety  unless  it  amounts  to  fraud  or  concealment. 

The  defendants  rely  upon  the  cases  of  Phillips  v.  Foxall,  L.  R. 
7  Q.  B.  666;  Enright  v.  Falvey,  4  L.  R.  Ir.  397,  and  Sanderson  v. 
Aston,  L.  R.  8  Ex.  73.  In  the  first  two  cases,  it  was  held  that/7 
in  the  case  of  a  continuing  guaranty  for  the  honesty  of  a  servant/ 
if  the  master  discovers  acts  of  dishonesty  in  the  servant  and  aftery 
ward  continues  him  in  his  service  without  notice  to  the  sureties; 
the  latter  are  discharged.  We  have  no  occasion  to  discuss  these 
cases  further  than  to  say  that  they  have  no  application  to  the  case 
before  us,  because  it  is  not  contended  that  the  agent  Dix,  for  whom 
the  defendants  were  bound,  was  guilty  of  any  defalcations  or  other 
dishonest  or  fraudulent  conduct.  In  Sanderson  v.  Aston,  the  dec- 
laration was  on  a  bond  guaranteeing  that  one  J.,  a  clerk  of  the 
plaintiff,  should  pay  over  all  money  he  received  on  the  plaintiff's 
account ;  the  plea  was,  that,  before  the  defaults  sued  for,  J.  had 
committed, other  defaults  of  the  same  kind,  and  the  plaintiff,  know- 
ing this,  continued  to  employ  him  without  notice  to  the  defendant. 
On  demurrer,  this  plea  was  held  good.     Chief  Baron  Kelly,  in  de- 


^ 


^ 


550 


SURETYSHIP   DEFENSES 


livering  his  opinion,  says,  "the  case  of  Phillips  v.  Foxall  clearly 
shows  that,  if  any  defaults  or  breaches  of  duty,  whether  by  dis- 
honesty or  not,  have  been  committed  by  the  employed  against  the 
employer,  under  such  circumstances  that  the  employer  might  have 
dismissed  the  employed,  the  surety  is  entitled  to  call  on  the  em- 
ployer to  dismiss  him."  This  decision  does  not  seem  to  be  sus- 
tained by  Phillips  v.  P'oxall,  which  was  a  case  of  criminal  embezzle- 
ment by  the  servant,  and  we  are  not  aware  of  any  other  decisions 
sustaining  it,  at  least  in  this  country.  Its  effect  would  be  to  impose 
upon  the  creditors  the  duty  of  notifying  the  sureties  whenever 
there  are  any  arrears  in  the  accounts  of  the  agent  or  servant  for 
whom  they  are  bound,  from  whatever  cause  arising.  We  do  not 
think  that  any  such  active  duty  of  diligence  to  protect  the  sureties- 
rows  out  of  the  decision  in  Sanderson  v.  Aston,  regarding  it  as 
in  conflict  with  the  general  current  of  authorities. 

This  question  was  considered  in  Atlantic  &  Pacific  Telegraph 
Co.  v.  Barnes,  64  N.  Y.  385  ;  and  it  was  held  that  continuing  an 
agent  in  service  after  a  default  is  known,  without  notice  to  the 
surety,  does  not  discharge  him,  no  fraud  or  dishonesty  being  shown. 
See  also  McKecknie  v.  Ward,  58  N.  Y.  541. 

Upon  the  whole  case,  therefore,  we  are  of  opinion  that,  upon  the 
facts  stated  in  the  bill  of   exceptions,  the   sureJJ£s~--were— net— dts- — 
charged ;  and  that  the  superior  court  rightly  found  for  the  plaintiff. 

Exceptions  overruled. 

Accord :  Pittsburg,  Fort  Wayne,  etc.,  R.  Co.  v.  Shaeffer,  59  Pa.  350 ;  La  Ros 
v.  Logansport  Nat.  Bank,  102  Ind.  332,  1  N.  E.  805. 


THE  ATLANTIC  AND  PACIFIC  TELEGRAPH  COMPANY, 

RESPONDENT,  v.  JAMES  A.  BARNES 

ET  AL.,  APPELLANTS 


64  N.  Y.  385,  21  Am,  Rep.  621  (1876). 

Appeal  from  judgment  of  the  General  Term  of  the  superior  court 
of  the  city  of  New  York  in  favor  of  plaintiff,  entered  upon  an  or- 
der denying  a  motion  for  a  new  trial  and  directing  judgment  upon 
a  verdict. 

This  action  was  upon  a  joint  and  several  bond  executed  by  de- 
fendants to  the  plaintiff  upon  the  employment  by  the  latter  of  de- 
fendant William  E.  Barnes. 

The  bond  was  conditioned,  among  other  things,  that  said  Barnes 
should  "faithfully  account  for  all  moneys  and  property  belonging 
to  said  Atlantic  &  Pacific  Telegraph  Company  which  shall  come 
to  his  hands,  whether  the  same  shall  be  paid  or  delivered  to  him 


(tv-^ 


FAILURE    OF    DISCLOSURE 


551 


by  said  Atlantic  &  Pacific  Telegraph  Company  to  be  disbursed  or 
used  for  its  account,  or  shall  be  received  by  him  from  other  per- 
sons for  the  use  and  benefit  of  said  Atlantic  &  Pacific  Telegraph 
Company,  or  shall  come  to  his  hands  in  any  other  manner." 

The  bond  in  question  was  executed,  and  Barnes  entered  into  the 
employment  of  the  defendant  December  22,  1873.  It  was  admitted 
on  the  trial,  that  on  January  30,  1874,  Barnes  was  in  default  to 
the  plaintiff  in  the  sum  of  fifteen  dollars  and  ninety-two  cents,  of 
which  plaintiff  had Jmowkdg^but  did  not  notify  the  sureties,  and 
continued  Barnes  irTits  employ  until  March  24,  1874,  when  he  was 
discharged.     His  default  at  that  time  amounted  to  $269.67. 

A  motion  on  the  part  of  defendants  to  dismiss  the  complaint  was 
denied,  and  the  court  directed  the  jury  to  find  a  verdict  for  the 
plaintiff  for  the  full  amount.  Defendants  duly  excepted.  A  ver- 
dict was  rendered  accordingly. 

Exceptions  were  ordered  to  be  heard  at  first  instance  at  General 
Term. 

Miller,  J. :  This  action  was  upon  a  bond  executed  by  the  de- 
fendants for  the  benefit  of  one  of  them,  who  was  an  employe  of 
the  plaintiff.  About  one  month  after  the  bond  was  given,  the. 
principal  was  in  deTault  for  a  small  amount,  of  which  the  plaintiff  /  _ 
had  knowledge.  lie  did  not  notify  the  sureties  of  such  default. 
but  continued  to  employ  the  principal  until  the  default  had  in- 
creased to  the  amount  claimed  in  the  complaint.  It  is  insisted  that 
the  failure  of  the  plaintiff  to  give  such  notice  exonerated  the 
sureties  from  liability  for  any  subsequent  defalcation  or  dishonesty 
of  the  principal  during  his  continuance  in  plaintiff's  service,  and 
that  by  reason  of  this  neglect  they  were  discharged  from  liability. 
The  principle  contended  for  is  not  without  sanction,  and  the  ques- 
tion to  be  determined  here  is  to  the  application  of  certain  established 
rules,  and  the  adjudications  of  the  courts  to  the  facts  presented 
tipon  this  appeal. 

Judge  Story  on  Equity  Jurisprudence  (324),  lays  down  the 'rule 
that  "any  concealment  of  material  facts,  or  any  express  or  implied 
misrepresentation  of  such  facts,  or  any  undue  advantage  taken  of 
the  surety  by  the  creditors,  either  by  surprise  or  by  withholding 
proper  information,  will  undoubtedly  furnish  sufficient  ground  to 
invalidate  the  contract."  The  English  authorities,  especially  those 
of  a  recent  date,  go  very  far  to  uphold  the  position  that  the_£n>7 
pioyer  is  bound  to  notify  those  who  have  become  guarantors  for 
the  faithful  discharge  of  the  duties  which  the  employe  has  assumed 
to  perform,  of  any  defalcation  or  dishonesty  on  the  part  of  the  lat- 
ter, as  will  be  seen  by  a  brief  reference  to  some  of  the  leading  --> 
cases.  In  Rallston  v.  Mathews,  10  Clark  &  F.  (House  of  Lords 
Cases)  934,  an  action  was  instituted  to  avoid  a  bond  executed  for 
the  fidelity  of  a  commission  agent  to  his  employers,  upon  the 
ground    of    concealment    of    material    circumstances    affecting    the 


J> 


552 


SURETYSHIP    DEFENSES 


agent's  credit  prior  to  the  date  of  the  bond,  and  which  if  commu- 
nicated to  the  surety  would  have  prevented  him  from  undertaking 
the  obligation,  and  it  was  laid  down,  that  mere  noncommunication 
of  circumstances  affecting  the  situation  of  the  parties,  material  for 
the  surety  to  be  acquainted  within  the  knowledge  of  the  person  ob- 
taining the  surety  bond  was  undue  concealment,  though  not  wilful 
or  intentional,  or  with  a  view  of  any  advantage  to  himself. 
In  this  case  the  concealment  alleged  was  prior  to  the  execution  of 
the  bond,  and  hence  it  bears  a  different  aspect  than  if  the  facts 
concealed  had  transpired  after  the  bond  had  been  executed. 
_  In  Phillips  v.  Foxall  (L.  R.  7  Q.  B.  666),  where  there  was  a  con- 
tinuing guaranty  of  the  honesty  of  a  servant,  it  was  held  that  if  the 
master  discovers  that  the  servant  has  been  guilty  of  dishonesty  in 
the  course  of  the  service,  and  instead  of  dismissing  the  servant  he 
chooses  to  continue  him  in  his  employ  without  the  knowledge  and 
consent  of  the  surety,  express  or  implied,  he  can  not  afterward 
have  recourse  to  the  surety  to  make  good  any  loss  which  may 
-  arise  from  the  dishonesty  of  the  servant  during  his  subsequent  ser- 
vice. A  later  case,  Sanderson  v.  Aston  (L.  R.  8  Exch.  73),  upon 
the  authority  of  Phillips  v.  Foxall,  upholds  substantially  the  same 
principle.  (See  also,  Burgess  v.  Eve,  L.  R.  13  Eq.  450,  458;  Mon- 
tague v.  Tidscombe,  2  Vern.  518.) 

The  early  adjudicated  cases  in  this  state  have  not  gone  to  the  ex- 
tent of  the  rule  laid  down,  perhaps  for  the  reason  that  no  case  of 
palpable  dishonesty,  known  to  the  employer,  was  actually  presented 
which  required  the  courts  to  determine  the  precise  question  whether 
notice  was  demanded  under  such  circumstances.  It  is  not  neces- 
saryto  examine  them  in  detail,  as  those  as  well  as  other  cases 
bearing  on  the  question  are  fully  considered  and  sharply  criticized 
in  the  opinion  of  Judge  Folger,  on  McKecknie  v.  Ward  (58  N.  Y. 
541).  In  that  case  an  action  was  brought  upon  a  bond  in  the  pen- 
alty of  $2,000,  conditioned  for  the  performance  by  the  principal 
of  a  contract  between  him  and  the  plaintiffs,  which  were  recited 
in  the  bond,  and  it  was  held  that  a  contract  of  suretyship  for  the 
performance,  by  a  vendee,  of  a  continuing  agreement  of  purchase 
and  sale,  by  which  goods  purchased  from  time  to  time,  as  required, 
are  to  be  paid  for  at  stated  periods,  is  not  discharged  by  mere  for- 
bearance on  the  part  of  the  vendor,  to  enforce  payment  as  provided 
for  by  the  contract,  without  a  binding  agreement  for  the  extension 
of  time.  It  was  there  said  that  mere  indulgence  of  the  creditor  in 
such  a  case  was  not  enough  to  discharge  the  surety;  that  beyond 
the  bare  neglect  of  the  creditor  to  enforce  payment,  there  must  be 
some  connivance  or  gross  negligence  amounting  to  wilful  shutting 
of  the  eyes  to  fraud.  The  case  was  distinguished  from  Phillips 
v.  Foxall  and  Sanderson  v.  Aston  (supra),  as  those  related  to  mas- 
ter and  servant,  and  the  obligation  incurred  was  that  there  should 
be  no  breach  of  duty,  and  for  the  honesty  of  the  principal.     If, 


FAILURE    OF   DISCLOSURE  553 

in  such  a  case  as  the  one  last  cited,  connivance  and  gross  negligence 
will  discharge  the  surety,  it  would  seem  that  quite  as  strong  rea- 
sons exist  for  discharging  sureties  where  it  is  known  to  the  master 
that  the  servant  has  been  dishonest,  and  has  appropriated  to  his 
own  use  funds  which  he  has  received  by  virtue  of  his  employment, 
and,  with  full  knowledge  of  such  a  dereliction  of  duty,  continues 
to  allow  such  servant  an  opportunity  to  increase  his  defalcation. 
Such  conduct  of  the  master  would  be  a  clear  violation  of  the  rule 
which  obligates  him  to  do  no  act  which  would  injure  or  impair  the 
liability  of  the  sureties. 

The  bond  executed  by  the  defendants  in  this  case  provided  that 
the  principal  should  faithfully  account  for  all  moneys  and  prop- 
erty which  should  come  to  his  hands,  and  the  admission  made  upon 
the  trial  shows  that  he  was  in  default  to  the  knowledge  of  the  plain- 
tiff, and  no  notice  given  of  said  default  to  the  sureties.  The  nature 
of  such  default  and  how,  or  under  what-Ctfettmstances  it  arose,  is 
not  proved,  and  we  a  rek  ijZtojn  ference  to  determine  its  origin 
and  real  character.  In^Fhillips  v.  Foxall  (supra)  and  kindred 
cases,  the  dishonesty  of  the  servant  was  conceded,  and  no  question 
was  presented  as  to  that  fact.  While  here/it  is  not  entirely  mani- 
fest that  the  default  was  occasioned  by  dishonesty,  perhaps  tem- 
porary  absence,  sickness  or  some  unavoidable  accident  may  have 
prevented  an  accounting  by  the  principal,  and  delayed  payment  of 
the  amount  in  arrears,  and  it  may  be  accounted  for  on  the  assump- 
tion that  there  was  no  breach  of  honesty  or  want  of  integrity  on 
the  part  of  the  servant.  If  the  default  of  the  principal  was  merely 
casual,  and  without  fraud ._or  dishonesty,  then,  within  the  rules  laid 
down,  there  was  no  concealment  of  material  facts,  or  suppression 
of  proper  information,  which  rendered  the  contract  of  the  sureties 
invliTTdv  Where  such_a  defense  is  interposed  the  proof  should  be 
reasonably  cleaj^Ji^tHeljclelinquency  was  causecl~Dy  dishonest  con- 
duct or  a  gross  violation  oT"fhe"~ObTigations  imposed  by  the  bond. 
We  think  thaf~there  is  a  wantrTTf  evicteflte  in  this  respect,  and,  for 
this  reason,  the  court  was  right  in  denying  the  motion  to  dismiss 
the  complaint,  and  in  directing  a  verdict  for  the  plaintiff. 

The  judgment  should  be  affirmed,  with  costs. 

All  concur,  except  Allen  and  Earl,  JJ.,  not  voting. 

Judgment  affirmed. 


(L. 


554  SURETYSHIP    DEFENSES 


SECTION  13.    STATEMENTS  BY  CREDITOR  AFTER 

DEFAULT 

I 

N.  W.  WILKINS  v.  BETTY  HANSON  ET  AL. 

119  Minn.  399,  138  N.  W.  418,  Ann.  Cas.  1914B,  56  (1912). 

Action  in  the  district  court  for  Clay  county  to  recover"$300  upon 
a  promissory  note.  .  Defense  of  defendants  Bayer  and  Beck  is 
I  stated  in  the  opinion.  The  case  was  tried  before  Nye,  J.,  who  di- 
rected a  verdict  against  defendants  Hanson  and  denied  a  motion 
to  direct  a  verdict  against  defendants  Bayer  and  Beck,  and  a  jury 
who  returned  a  verdict  in  their  favor.  From  an  order  denying 
plaintiff's  motion  for  a  new  trial,  he  appealed.     Affirmed. 

Bunn,  J. :  This  action  was  to  recover  on  a  promissory  note  ex- 
ecuted by  the  defendants  Betty  Hanson  and  A.  Hanson,  as  princi- 
pals, and  by  defendants  Bayer  and  Beck  as  sureties.  The  Hansons 
did  not  appear  at  the  trial,  and  a  verdict  was  directed  in  plaintiff's 
favor  as  against  them.  As  between  plaintiff  and  defendants  Bayer 
and  Beck,  the  case  was  submitted  to  the  jury,  and  a  verdict  returned 
in  favor  of  said  defendants.  Plaintiff  appeals  from  an  order  de- 
nying his  motion  for  a  new  trial. 

The  assignments  of  error  raise  but  one  question :  Was  plaintiff 
entitled  on  the  evidence  to  a  directed  verdict  against  defendants 
Bayer  and  Beck? 

The  defense  was  that  after  the  maturity  of  the  note,  and  at  a 
time  when  the  Hansons  were  preparing  to  move  to  Canada,  the 
"sureties,  on  requesting  A.  Hanson  to  pay  the  note,  were  informed 
by  him  that  it  had  been  paid,  and  that  upon  inquiring  of  plaintiff 
if  the  note  had  been  paid,  were  informed  by  him  that  it  had  been 
settled;  that  had  they  not  been  "lulled  to  security"  by  this  state- 
ment of  plaintiffs,  defendants  could  and  would  have  protected 
themselves  by  collecting  the  no^e  from  the  Hansons. 

The  law  is  well  settled  that,  if  a  creditor  informs  a  surety  that 
the  debt  is  paid  or  settled,  and  thereby  lulls  the  surety  into  se- 
curity, inducing  him  to  take  no  steps  to  protect  himself,  the  cred- 
itor is  estopped  from  thereafter  proceeding  against  the  surety,  if 
(there  is  evidence  tending  to  show  that  the  surety  was  damaged ; 
/that  is,  that  he  might  have  protected  himself  had  he  not  been  in- 
I  duced  to  take  no  steps  to  that  end.  32  Cyc.  214;  Child's  Suretyship 
Vand  Guaranty,  265;  Carpenter  v.  King,  9  Mete.  (Mass.)  511,  43 
Am.  Dec.  405;  Sioux  Falls  v.  Kellog,  81  Iowa  124,  46  N.  W.  859; 
Auchampaugh  v.  Schmidt,  80  Iowa  186. 

The  evidence  was  ample  to  justify  the  submission  to  the  jury  of 
the  question  whether  plaintiff  stated  to  defendants  that  the  note 
had  been  settled,  and  the  question  whether  defendants  relied  on 


J 


STATEMENTS    AFTER   DEFAULT 


555 


this  statement  and  were  thereby  induced  to  allow  the  Hansons  to 
depart    for    Canada    without    taking    any    steps    to    protect    them- 
selves.    The  only  doubt  is  whether  defendants  suffered  any  loss, 
that  is,  whether  there  is  any  showing  that  would  warrant  the  jury 
in  finding  that  they  could  have  protected  themselves  had  they  made 
the  effort.     We  have  examined  the  record  with  care,  and  reach  the 
conclusion  that  this  question  was  for  the  jury.    There  was  evidence 
tending  to  show  that  A.  Hanson  had  recently/ received  $800  on  a 
life  insurance  policy,  that  he  had  a  car  loaded  nf  part  with  personal,,, 
property  ready  to  transport  to  Canada,  and  that  his  wife,  defendant 
Betty   Hanson,   owned   a   building,   which   had   just  been   sold    for 
some  $700  more  than  the  incumbrance  thereon.  ^ While  this  evidence  - 
does  not  make  a  strong  showing  of  actual  damage  to  the  sureties,  ' 
we  are  satisfied  that  it  is  sufficient  to  warrant  the  submission  of 
the  question  to  the  jury.     We  hold  that  the  trial  court  was  correct 
in  denying  plaintiff's  motion  for  a  directed  verdict. 
Order  affirmed. 

Accord:  Harris  v.  Brooks,  38  Mass.  195,  32  Am.  Dec.  254;  Whitaker  v. 
Kirby,  54  Ga.  277;  Cochecho  Nat.  Bank  v.  Haskell,  51  N.  H.  116,  12  Am. 
Rep.  67. 


BRUBAKER  v.  OKESON 

36  Pa.  St.  519  (1860). 

Error  to  the  common  pleas  of  Juniata  county. 

This  was  an  action  of  debt  by  John  Brubaker,  for  the  use  of  Rob- 
ert C.  Gallagher,  against  William  Sherlock  (who  was  not  served 
with  process)  and  William  Okeson,  upon  a  joint  and  several  single 
bill,  of  which  the  following  is  a  copy: 

"$400.  Fifteen  months  after  date,  we  or  (either)  of  us  do  promise 
to  pay  to  John  Brubaker  the  sum  of  four  hundred  dollars,  without 
defalcation,  for  value  received,  with  interest  from  date. 

"Witness  our  hands  and  seals  the  1st  day  of  February,  1856. 

"William  Sherlock, 
"William  Okeson." 
(Seal) 

The  defense  was,  that  Okeson  was  the  surety  of  Sherlock,  and 
that  Brubaker  had  released  him  by  giving  time  to  the  principal 
debtor.  The  evidence  given  on  the  trial  is  fully  stated  in  the  fol- 
lowing charge  to  the  jury,  delivered  in  the  court  below  by  Gra- 
ham, P.  J. : 

"This  action  is  upon  a  note  dated  1st  February,  1856,  signed  by 
William  Sherlock  and  William  Okeson,  for  the  payment  of  $400  to 


•J^ 


556 


SURETYSHIP    DEFENSES 


John  Brubaker,  fifteen  months  after  date,  with  interest.  Sherlock 
has  not  been  served  with  process,  and  the  case  is  now  being  tried 
against  William  Okeson  alone.  The  defense  is,  that  Okeson  was  the 
surety  of  Sherlock,  and  he  was  released  from  his  suretyship  by 
Brubaker. 

"The  evidence  tends  very  strongly  to  show  that  Sherlock  was  the 
principal  debtor  and  Okeson  his  surety.  If  you  are.  satisfied  from 
the  evidence  that  Okeson  was  the  surety  of  Sherlock,  then  it  be- 
comes an  important  inquiry  in  the  case,  whether  Brubaker  released 
Okeson  from  liability  to  him  on  this  note  as  the  surety  of  Sherlock. 

"The  evidence  shows  that  Sherlock  lives  in  the  West,  and  that 
Brubaker  visited  him  in  1857;  that  after  his  return  he  met  with 
Okeson  at  a  sale,  when  the  conversation  relied  upon  by  the  defend- 
ant's counsel  occurred.  Jonathan  P.  Doyle,  a  witness  called  by  the 
defendant,  testifies  that  on  the  3d  of  December,  1857,  he  was  pres- 
ent and  heard  a  conversation  on  this  subject  between  Brubaker  and 
Okeson ;  that  Brubaker  said  to  Okeson,  'that  William  Sherlock  is 
good  enough  for  the  money,  and  I  don't  want  you ;'  that  Mr.  Bru- 
baker said  he  had  been  to  the  West  to  see  Sherlock,  and  told  of  his 
prospects,  said  he  had  given  him  time  till  he  would  get  his  crops  out ; 
that  he  (Sherlock)  was  good  enough  and  Brubaker  did  not  care 
about  Okeson. 

"James  Gilliford  testifies  to  the  same  conversation ;  that  Brubaker 
said  Sherlock  had  a  good  crop  of  wheat,  a  fine  appearance  for  a 
good  crop  of  corn,  and  a  good  stock  of  horses  and  cattle  on  his 
farm ;  that  he  had  given  him  time,  or  would  give  him  time,  and  that 
Sherlock  would  pay  it,  and  that  he  (Brubaker)  did  not  want  Oke- 
son any  longer.  If  this  conversation  occurred,  and  it  was  all  the 
conversation  that  occurred  between  the  parties,  and  Okeson  was  the 
surety  of  Sherlock,  it  would  discharge  Okeson,  and  be  an  available 
defense,  on  the  ground  that  it  would  lull  the  surety  into  security, 
and  prevent  him  from  taking  any  action  of  his  own  security  or  in-  - 
demnity,  and  it  would  be  a  fraud  upon  the  surety,  for  the  creditor 
afterward,  contrary  to  his  assurance,  to  call  upon  the  surety  for 
payment. 

"To  repel  the  effect  of  this  evidence,  the  plaintiff  has  called  Wil- 
liam Hart,  who  testifies  that  he  was  present  at  this  conversation, 
and  the  principal  remark,  that  he  remembers,  was,  that  Brubaker 
said  to  Okeson,  that  if  Sherlock  did  not  pay  that  money  in  the 
spring,  he  would  look  to  Okeson  for  it.  The  plaintiff  also  relies 
upon  the  evidence  of  John  Woodward,  who  testifies  that  in  a  con- 
versation with  William  Okeson,  in  December,  1858,  after  Sherlock 
had  made  an  assignment,  Okeson  spoke  of  Brubaker's  claim  against 
Sherlock,  and  said  he  expected  to  have  it  to  pay,  but  that  he  would 
get  it  again,  and  that  Sherlock  would  be  able  to  hold  his  property. 

"It  is  for  you  to  pass  upon  this  conflicting  testimony.  If  Dovle 
and  Gilliford  stated  all  that  occurred  between  these  parties  at  the 


<t\k^ 


/  . 

STATEMENTS    AFTER   DEFAULT 


557 


conversation  referred  to,  Mr.  Okeson  would  be  discharged,  and  you 
should  find  for  the  defendant.  On  the  contrary,  if  you  believe  that 
Brubaker,  at  the  conclusion  of  the  conversation,  told  Okeson  that 
he  would  look  to  him  for  payment,  if  Sherlock  did  not  pay  in  the 
spring,  then  the  previous  conversation,  as  testified  to  by  Doyle  and 
Gilliford,  would  not  discharge  Okeson,  if  at  that  time,  as  plaintiff's 
counsel  allege,  Brubaker  gave  notice  that  he  would  look  to  him  for 
payment." 

To  this  instruction  the  plaintiff  excepted ;  and  a  verdict  and  judg- 
ment having  been  rendered  for  the  defendant,  the  plaintiff  removed 
the  cause  of  this  court,  and  here  assigned  the  same  for  error. 

The  opinion  of  the  court  was  delivered  by  Strong,  J. 

The  original  liability  of  Okeson  to  pay  the  debt  was  established, 
and  indeed  it  was  not  denied.  It  was,  therefore,  incumbent  upon 
him  to  show  affirmatively  his  discharge  from  that  liability.  This 
he  attempted  to  do,  by  evidence  that  he  was  a  surety,  and  that  the 
creditor  had  told  him  on  one  occasion  that  Sherlock,  the  principal 
debtor,  was  good  enough  for  the  money ;  that  he  did  not  want  him 
(Okeson)  ;  that  he  had  been  to  the  West  to  see  Sherlock;  and  that 
he  had  a  good  crop  of  wheat,  a  fine  appearance  for  a  good  crop  of 
corn,  and  a  good  stock  of  horses  and  cattle  on  his  farm ;  that  he 
had  given  him  time  or  would  give  him  time,  and  that  Sherlock  would 
pay  it,  and  that  he  did  not  want  Okeson  any  longer.  The  court 
charged  the  jury  that  "if  this  conversation  occurred,  and  it  was  all 
the  conversation  that  occurred  between  the  parties,  and  Okeson  was 
the  surety  of  Sherlock,  it  would  discharge  Okeson,  and  be  an  avail- 
able defense,  on  the  ground  that  it  would  lull  the  surety  into  se- 
curity,  and  prevent  him  from  taking  any  action  for  his  own  security 
or  indemnity,  and  it  would  be  a  fraud  upon  the  surety,  for  the  cred- 
itor, afterward,  contrary  to  his  assurance,  to  call  upon  the  surety 
for  payment."  To  this  instruction  the  plaintiff  excepted,  and  he  has 
assigned  it  here  for  error. 

It  is  noticeable,  that  the  learned  judge  did  not  submit  to  the  jury 
to  find  what  the  plaintiff  intended,  or  what  the  defendant  understood 
by  the  expressions,  he  had  "given  time"  to  Sherlock,  and  that  "he 
did  not  want  Okeson  any  longer."  The  court  construed  the  lan- 
guage of  the  witnesses,  and  took  away  from  the  jury  all  inquiry  as 
to  its  meaning.  The  rule,  however,  is  undoubted,  that  the  meaning 
of  words  used  in  conversation,  and  what  the  parties  intended  to  ex- 
press by  them,  is  exclusively  for  the  jury  to  determine.  9  Watts  59. 
It  is  obvious  that  the  testimony  is  utterly  inadequate  to  prove  a  di- 
rect and  binding  release  of  the  surety.  The  creditor  said  "he  did  not  t 
want  Okeson  any  longer,"  but  this  did  not  amount  to  an  agreement 
to  discharge  him,  and  if  it  did,  it  was  entirely  without  consideration, 
and  therefore  inoperative. 

Nor  does  the  expression  of  the  creditor  that  he  had  given  time  to 
the  principal  debtor  necessarily  amount  to  proof  of  an  equitable  re- 


558 


SURETYSHIP    DEFENSES 


">< 


lease  of  the  surety.  It  was  quite  possible  for  him  to  give  time,  with- 
out affecting  in  the  least  the  liability  of  Okeson.  Nothing  short  of 
an  agreement  to  give  time,  which  binds  the  creditor  and  prevents 
his  bringing  suit,  will  discharge  the  surety.  Mere  delay,  without 
such  a  binding  agreement,  will  not.  And,  if  such  an  agreement  may 
be  inferred,  from  a  simple  declaration  of  the  creditor,  that  he  had 
given  time  (which  we  do  not  admit),  it  is  not  to  be  inferred  by  the 
court,  as  a  presumptio  juris  de  jure.  Whether  the  jury  were  at  lib- 
erty to  draw  such  an  inference  need  not  now  be  considered.  How 
they  could,  is  certainly  not  manifest,  for  giving  time,  and  a  contract 
to  give  time,  are  distinct  and  independent  things.  Proof  of  the  ex- 
istence of  a  subject-matter,  about  which  a  contract  may  be  made, 
would  seem  to  have  no  tendency  to  prove  that  one  in  fact  had  been 
made. 

Indeed,  the  learned  judge  of  the  common  pleas  does  not  appear 
to  have  rested  the  defendant's  case  upon  either  of  these  grounds. 
-His  view  was  that  the  defendant  was  discharged,  because  of  the 
language  of  the  plaintiff,  alleged  to  have  been  proved,  would  lull 
him  into  security,  and  prevent  his  taking  any  action  for  his  own  in- 
demnity ;  and  because  it  would  be  a  fraud  upon  the  surety,  for  the 

.'•plaintiff  afterward  to  call  upon  him  for  payment.  The  simple  mean- 
ing of  this  is  that  the  plaintiff  was  estopped,  not  by  matter  of  rec- 
ord, or  by  deed,  but  by  matter  in  pais.  The  objection  to  it  is,  that 
there  was  nothing  in  the  evidence  to  warrant  the  conclusion  that  the 
defendant  had  been  injured  by  the  declarations  of  the  plaintiff,  or 
that  he  was  in  any  worse  condition  than  he  would  have  been  in  had 
those  declarations  never  been  made.    Certainly,  it  was  not  for  the 

;  court  to  say,  as  matter  of  law,  that  he  had  been  injured.  But  it  is 
essential  to  an  equitable  estoppel  by  matter  in  pais,  that  he  who  sets 
it  up  should  show  that  he  has  been  misled  to  his  hurt.  Dezell  v. 
Odell,  3  Hill  215;  Patterson  v.  Lytle,  1  Jones  53;  Hill  v.  Epley,  7 
i  Casey  334.  It  never  yet  has  been  held  that  a  declaration  of  the  cred- 
itor that  the  principal  debtor  was  good  enough,  that  the  surety  was 
in  no  danger,  and  that  the  debt  would  be  collected  from  the  princi- 
pal, without  more,  was  sufficient  to  estop  the  creditor  from  proceed- 
ing against  the  surety.  Such  declarations  are  exceedingly  common. 
They  are  often  made  to  induce  the  surety  to  go  into  the  contract, 
and  they  are  repeated  afterward,  without  any  design  to  mislead,  or 
without  being  understood  as  a  waiver  of  any  rights.  They  are  made 
and  received  as  expressions  of  opinion.  They  neither  invite  con- 
fidence, nor  is  confidence  often  reposed  in  them.  Standing  alone, 
they  will  not  discharge  the  surety. 

Bank  v.  Klingensmith,  7  Watts  523,  does  not  sustain  the  charge 
of  the  court  in  this  case.  There  the  creditor  held  a  judgment  against 
the  principals  avid  the  surety ;  the  surety  called  upon  the  creditor, 
and  requested  that  an  execution  might  be  issued  to  seize  the  prin- 
cipals' property  about  being  removed ;  he  stated  that  he  wished  to 


STATEMENTS    AFTER   DEFAULT  559 

be  released,  and  that  the  principal  had  property  sufficient  within 
reach  of  an  execution  to  pay  the  debt;  the  creditor  refused  compli- 
ance, stated  that  the  principal  was  good  enough,  and  that  he  would 
give  the  defendant  clear  of  his  indorsement ;  no  execution  was  is- 
sued. There  is  no  similarity  between  that  case  and  the  present. 
There  the  surety  was  in  motion  to  secure  himself ;  he  had  a  right 
to  insist  that  execution  should  be  issued,  and  he  did  insist.  There 
was  proof  of  actual  injury  in  withholding  the  execution,  an  execu- 
tion to  which  the  surety  was  entitled  on  his  request,  and  the  case 
was  put  upon  the  ground,  both  in  the  court  below  and  in  this  court, 
that  he  had  sustained  injury,  not  from  the  declarations  of  the  cred- 
itor, but  from  the  withholding  of  the  execution. 

The  case  of  Harris  v.  Brooks,  21  Pick.  195,  relied  upon  by  the 
defendant  in  error,  is  not  unlike  Bank  v.  Klingensmith.  There  the 
surety  was  also  in  motion ;  he  called  upon  the  creditor,  and  stated 
that  if  he  had  to  pay  the  debt  he  wished  to  attend  to  it  soon,  as  he 
then  could  get  security  of  the  principal ;  the  creditor  assured  him 
that  he  (the  creditor)  would  look  to  the  principal  for  payment,  and 
that  he  (the  surety)  need  not  give  himself  any  trouble  about  the 
note,  for  he  should  not  be  injured.  The  case  was  put  to  the  jury 
with  the  instruction  that,  if  in  consequence  of  this  assurance  of  the 
creditor  the  surety  omitted  to  take  up  the  note  and  secure  himself 
out  of  the  property  of  the  principal  debtor,  he  was  discharged.  The 
defense,  therefore,  as  in  Bank  v.  Klingensmith,  rested  not  in  the 
declarations  of  the  creditor  alone,  but  on  them  and  superadded  evi- 
dence that  there  had  been  actual  harm  resulting  from  them  to  the 
defendant.  This  essential  to  estoppel  in  pais  was,  therefore,  not 
wanting,  as  it  is  in  the  present  case.  The  language  of  Chief  Justice 
Shaw  is  to  be  understood  as  applicable  to  the  case  he  then  had  in 
hand,  a  case  in  which  the  jury  found  that  injury  had  resulted  from 
the  declarations  of  the  creditor,  and  the  only  question  therefore  was, 
whether  they  were  such  as  to  warrant  his  relying  upon  them,  and 
guiding  his  action  by  them.  Surely,[without  having  been  the  occa-"^ 
sion  of  injury  to  the  defendant,  the  creditor  can  not  lie  guilt}'  of  a 
fraud  upon  him,  by  calling  upon  him  to  pay  a  debt  which  he  has 
promised  to  pay,  and  no  declaration  which  has  not,  in  fact,  influ- 
enced his  conduct  can  have  done  the  surety  any  harm.  In  losing 
sight  of  this,  consists  the  error  of  the  charge,  and  for  this  reason, 
pointed  out  in  both  the  assignments  of  error,  the  judgment  must  be 
reversed. 

Judgment  reversed,  and  a  venire  de  novo  awarded. 

Accord:  Michigan  State  Ins.  Co.  v.  Soule,  51  Mich.  312,  16  N.  W.  662; 
Driskell  v.  Mateer,  31  Mo.  325,  80  Am.  Dec.  105. 

The  mere  statement  hy  the  creditor  that  in  his  opinion  the  principal  will 
pay  the  debt  will  not  discharge  the  surety.  Howe  Machine  Co.  v.  Farrington, 
81  N.  Y.  121. 


560 


}P 


SURETYSHIP    DEFENSES 


SECTION  14.    SET-OFF  AND  COUNTERCLAIM 

GILLESPIE  ET  AL  v.  TORRANCE 
25  N.  Y.  306,  82  Am,  Dec.  355  (1862). 


Appeal  from  the  superior  court  of  the  city  of  New  York.  Action 
upon  a  promissory  note  against  the  indorser  only.  Defense,  that  the 
indorsement  was  for  the  accommodation  of  the  maker ;  that  the  note 
was  one  of  several  given  for  oak  timber  sold  to  the  maker  by  the 
"plaintiffs;  that  the  timber  was  a  raft  in  the  Hudson  River,  opposite 
the  city  of  New  York,  and  that,  on  making  the  sale,  the  plaintiffs 
produced  certificates  of  inspection  showing  that  there  were  29,441 
feet  of  first-quality  oak,  for  which  Van  Pelt,  the  maker  of  the  notes, 
agreed  to  pay  27l/2  cents  per  foot,  and  5,523  feet  of  second-quality 
or  refuse  oak,  for  which  Van  Pelt  agreed  to  pay  13^4  cents  per 
foot ;  that,  by  the  usage  of  the  timber  trade  in  New  York,  the  seller 
is  deemed  to  warrant  that  the  timber  sold  corresponds  in  quantity 


<  - 


and  quality  with  the  description  in  such  inspection  certificates ;  that 
Van  Pelt  gave  his  notes,  indorsed  by  the  defendant,  for  various 
sums,  amounting  in  the  aggregate  to  $9,000,  the  price  of  the  timber 
as  computed  from  the  inspection  certificates,  and  all  of  which  notes 
had  been  paid  except  the  one  in  suit ;  that  after  the  delivery  of  the 
timber  it  was  discovered  that  the  inspection  certificates  were  er- 
roneous in  this,  that  of  the  timber  of  first  quality  there  was  15,000 
.  feet  less  than  the  certificates  stated,  and  an  equal  excess  in  the 
refuse  timber;  that  if  the  prices  had  been  correctly  computed  ac- 
cording to  the  fact,  instead  of  being  computed  according  to  the  cer- 
tificate, it  would  have  amounted  to  less  than  $5,000 ;  that  the  plain- 
tiffs had,  therefore,  been  overpaid,  and  that  there  was  no  considera- 
tion for  the  note  in  suit.  On  the  trial,  the  judge,  under  exception 
by  the  defendant,  excluded  evidence  as  to  the  quantity  of  the  tim- 
ber of  the  different  qualities;  declined  to  permit  an  amendment  of 
the  answer  alleging  an  express  warranty ;  and  excluded  evidence  of 
the  usage  set  up  in  the  answer,  making  a  sale  by  certificate  equiva- 
lent to  a  warranty.  The  other  facts  stated  in  the  answer  were  sub- 
stantially proved  or  admitted.  The  plaintiffs  had  a  verdict  and  judg- 
ment, which  having  been  affirmed  at  general  term,  the  defendant 
appealed  to  this  court. 

Selden,  J. :  The  defense  in  this  case  is  not  founded  on  a  failure 
of  the  consideration  of  the  note,  otherwise  than  by  a  defect  in  the 
quality  of  the  timber  for  which  it  was  given.  That  being  so,  if  there 
was  neither  warranty  nor  fraud  in  the  sale  of  the  timber,  the  de- 
fect in  quality  constitutes  no  defense.  (Seixas  v.  Woods,  2  Caines 
48;  Sweet  v.  Colgate,  20  John  196;  Welsh  v.  Carter,  1  Wend.  185; 
Johnson  v.  Titus,  2  Hill  606.)    The  answer  does  not  allege  fraud  in 


juuJu^       _-,      |l*-*~ 


SET-OFF    AND    COUNTERCLAIM 


the  transaction,  and  unless  it  shows  a  warranty  of  the  quality  of  the 
timber,  it  presents  no  defense  to  the  note,  either  partial  or  total. 
The  argument  of  the  appellant's  counsel  to  maintain  the  position 
that  the  defense  rested  upon  a  failure  of  consideration,  and  not 
upon  a  claim  for  damages  on  a  breach  of  warranty,  is  very  ingeni-  • 
ous ;  but  the  answer  and  the  proof  show  that  all  the  timber  con- 
tracted to  be  delivered  to  Van  Pelt,  and  for  which  the  notes  were 
given,  was  in  fact  delivered,  and  the  real  ground  of  complaint  is, 
that  a  much  larger  proportion  of  it  than  was  shown  by  the  in- 
spector's certificates,  upon  the  faith  of  which  the  purchase  was 
made,  proved  to  be  of  inferior  quality.  The  law  being  well  estab- 
lished that  such;  defect  of  quality,  in  the  absence  of  fraud  or  war-  - 
ranty,  constitutes  no  defense  to  the  note,  or  to  any  part  of  it,/ and 
there  being  no  pretense  of  fraud,  it  follows  that  the  defense,  if 
there  is  any,  rests  upon  a  breach  of  warrantv^/J  , 

The  question  then  arises  whether  the  pfefnnff,  an  accommodation 
indorser  upon  a  note  given  by  Van  Pelt  to  the  plaintiffs  for  the 
timber,  can  avail  himself  of  a  breach  of  the  contract  of  warranty  in 
regard  to  the  quality  of  the  timber,  made  by  the  plaintiffs  to  Van 
Pelt,  on  the  sale  to  him.  To  decide  this  question,  it  is  necessary  to 
ascertain  the  ground  upon  which  such  defenses,  by  way  of  recoup- 
ment, as  they  were  denominated  prior  to  the  adoption  of  the  code 
now,  partially,  if  not  wholly,  merged  in  the  much  broader  term, 
counterclaim,  were  admitted.  If  we  regard  such  defenses  as  resting 
upon  a  failure  of  the  consideration  of  the  contract  on  which  the " 
plaintiff's  action  is  founded,  then  unquestionably  the  defendant 
could  avail  himself  of  the  breach  of  warranty  in  this  case,  because 
an  indorser  or  surety  may  always,  where  the  contract  has  not  been 
assigned,  show  a  failure,  partial  or  total,  of  consideration  of  his 
principal's  contract  which  he  is  called  upon  to  perform.  But  if  such 
defenses  are  regarded  as  the  setting  off  of  distinct  cause  of  action, 
one  against  the  other,  then  it  is  clear,  as  will  be  shown  hereafter, 
that  this  defendant  could  not  avail  himself  of  such  defense. 

The  subject  of  the  precise  ground  on  which  a  defendant  is  al- 
lowed to  reduce  a  recovery  against  him,  in  an  action  upon  a  con- 
tract, by  alleging  and  proving  fraud  or  breach  of  warranty — whether 
the  contract,  where  there  is  fraud  is  regarded  as  destroyed,  and  the 
recovery  had  on  a  quantum  meruit,  or  whether  the  reduction  of  the 
plaintiff's  claim  rests  upon  a  partial  failure  of  consideration,  or  upon 
the  setting  off  of  distinct  claims  against  each  other — has  often  been 
discussed,  but  without  any  general  concurrence  of  opinion  on  the 
question.  (Reab.  v.  McAllister,  4  Wend.  90  et  seq. ;  s.  c.  in  error, 
8  id.  109;  Batterman  v.  Pierce,  3  Hill  171,  177;  Ives  v.  Van  Epps, 
22  Wend.  155;  Nichols  v.  Dusenbury,  2  Comst.  286;  Van  Epps  v. 
Harrison,  5  Hill  66;  Barber  v.  Rose,  id.  78;  Baston  v.  Butler,  7 
East.  479;  Withers  v.  Greene,  9  How.  U.  S.  21-3.) 
3^-DeWitt. 


562 


SURETYSHIP    DEFENSES 


A  careful  examination  of  the  subject,  I  think,  must  lead  to  the 
conclusion  that  wherever  recoupment,  strictly  such,  is  allowed,  dis- 
tinct causes  of  action  are  set  off  against  each  other.  This  would 
seem  to  follow  from  the  right  of  election,  which  all  the  cases  admit 
the  defendant  has,  to  set  up  his  claim  for  damages  by  way  of  de- 
fense, or  to  resort  to  a  cross-action  to  recover  them.  (Ives  v.  Van 
Epps,  22  Wend.  157;  Batterman  v.  Pierce,  3  Hill  171;  Britton  v. 
Turner,  6  N.  H.  481 ;  Halsey  v.  Carter,  1  Duer  667 ;  Barber  v.  Rose, 
5  Hill  81 ;  Stever  v.  Lamoure,  Lalor's  Supp.,  352,  note  a.) 

In  many  cases  the  defendant's  damages  would  exceed  the  amount 
of  the  plaintiff's  claim,  which  shows  conclusively  that  such  dam- 


•  ages  do  not  rest  upon  a  mere  failure  of  consideration.  Where  there 
'  is  a  fraud,  the  party  deceived,  on  discovering  the  fraud,  may  re- 
scind the  contract ;  but  if  he  does  not  do  that,  the  contract  on  his 
part  remains  entire,  not  broken  and  not  modified,  and  he  is  bound 
to  perform  it  fully  according  to  its  terms :  he  has,  however,  arising 
from  the  fraud,  a  distinct  cause  of  action,  the  amount  of  which  he 
may  set  off  against  any  liability  on  his  part  growing  out  of  the  trans- 
action in  which  the  fraud  was  perpetrated.  As  was  said  by  Bron- 
son,  J.,  in  Van  Epps  v.  Harrison :  "When  sued  for  the  price,  the 
vendee  may  in  general  recoup  damages;  but  while  he  retains  the 
property  he  can  not  treat  the  contract  as  wholly  void,  and  refuse  to 
pay  anything.  By  retaining  the  property  he  assumes  the  validity  of 
the  contract,  and  can  be  entitled  to  nothing  more  than  the  damages 
which  he  has  sustained  by  reason  of  the  fraud."  The  same  prin- 
ciple is  applicable  to  cases  of  warranty,  except  that  the  breach  of 
warranty  gives  no  right  to  rescind,  unless  there  is  an  express  con- 
tract to  that  effect.  (Street  v.  Blay,  2  Barn.  &  Ad.  456;  Voorhees 
v.  Earl,  2  Hill  288;  Cary  v.  Gruman,  4  id.  625;  Muller  v.  Eno,  14 
N.  Y.  597;  Thornton  v.  Winn,  12  Wheat.  183;  Lattin  v.  Davis, 
Lalor's  Supp.  16)  In  ordinary  cases  of  breach  of  warranty,  there- 
fore, both  contracts  remain  binding  to  their  full  extent,  and  where 
recoupment  is  allowed  damages  for  a  breach  on  one  side  are  set  off 
against  like  damages  on  the  other  side.  The  "cross-claims  arising 
out  of  the  same  transaction  compensate  one  another,  and  the  balance 
only  is  recovered."  (8  Wend.  115;  22  id.  156;  3  Hill  174;  2  Comst. 
286.) 

It  has  always  been  optional,  as  is  suggested  above,  since  the  doc- 
trine of  recoupment  has  gained  a  foothold  in  the  courts,  with  a 
party  who  has  sustained  damages  by  fraud  or  breach  of  warranty  in 
the  purchase  of  goods,  when  sued  for  their  price,  to  set  off  or  re- 
coup such  damages  in  that  action,  or  to  reserve  his  claim  for  a  cross- 
action;  and  when  he  elected  to  recoup  he  could  not,  under  the  re- 
vised statutes,  have  a  balance  certified  in  his  favor,  nor  could  he 
maintain  a  subsequent  action  for  such  balance.  (Sickles  v.  Pattison, 
14  Wend.  257;  Batterman  v.  Pierce,  3  Hill  171 ;  Wilder  v.  Case,  16 


SET-OFF    AXD    COUNTERCLAIM  563 

Wend.  583 ;  Stever  v.  Lamoure,  Lalor's  Supp.  352,  note  a ;  Britton 
v.  Turner,  6  N.  H.  481.) 

Under  the  code  of  procedure,  doubtless  a  balance  might  be  re- 
covered (Code,  150-274;  Ogden  v.  Coddington,  2  E.  D.  Smith  317)  ; 
but.  the  right  of  election  to  set  up  a  counterclaim  in  defense,  or  to 
bring  a  cross-action  for  it,  still  exists.  (Hasley  v.  Carter,  6  Duer 
667;  Welch  v.  Hazelton,  14  How.  Pr.  97.)  Now  it  is  not  easy  to 
reconcile  with  these  established  principles  the  right  of  the  defendant 
in  this  suit  to  avail  himself  of  the  claim  which  Van  Pelt  may  have  |A 
against  the  plaintiffs  on  a  breach  of  warranty.  1.  Such  damages 
constitute  a  counterclaim,  and  not  a  mere  failure  of  consideration, 
and  not  being  due  to  the  defendant,  can  not  be  claimed  by  him.  (Code 
150;  Lemon  v.  Tull,  13  How.  Pr.  248;  16  id.  576,  note.)  2.  Van 
Pelt  has  a  right  of  election  whether  the  damages  shall  be  claimed  by 
way  of  recoupment  in  the  suit  on  the  note,  or  reserved  for  a  cross- 
action.  The  defendant  can  not  make  this  election  for  him.  3.  If  the 
defendant  has  a  right  to  set  up  the  counterclaim,  and  have  it  allowed, 
in  this  action,  it  must  bar  any  future  action  by  Van  Pelt  for  the  ; 
breach  of  warranty  and  as  no  balance  could  be  found  in  defendant's 
favor,  he  might  thus  bar  a  large  claim  in  cancelling  a  small  one.  If 
the  right  exists  in  this  case,  it  would  equally  exist  if  the  note  was  but 
$100  instead  of  $1,800.  4.  Supposing  the  other  notes  given  for  the 
timber  to  have  been  indorsed  by  different  persons,  for  the  accommo- 
dation of  Van  Pelt,  and  all  to  remain  unpaid,  each  of  the  indorsers  j  fl^ 
would  have  the  same  rights  as  the  defendant.  If  they  were  to  set  up 
the  same  defense,  how  would  the  conflicting  claims  be  reconciled  ? 

In  the  case  which  was  shown  on  the  trial  there  would  seem  to  be 
a  strong  equity  in  favor  of  the  defendant  to  have  the  note  canceled  , 
or  reduced,  by  applying  toward  its  satisfaction  the  damages  which 
appear  to  be  due  to  Van  Pelt  for  the  breach  of  warranty.  It  is,  how- 
ever, an  equity,  in  which  Van  Pelt  is  interested  to  as  great,  and 
possibly  a  greater  extent  than  the  defendant,  and  can  not  be  disposed 
of  without  having  him  before  the  court,  so  that  his  rights,  as  well 
as  those  of  the  defendant,  may  be  protected.  That  remedy  may  be 
open  to  the  defendant  still,  notwithstanding  the  judgment ;  especially 
if  the  insolvency  of  the  parties  renders  that  course  necessary  for  his 
protection.  (14  Johns.  63,  17;  id.  389;  2  Cow.  261 ;  2  Paige  581 ;  6 
Dana  32;  8  id.  164;  2  Story's  Eq.  Jur.  1446,  a,  1437.)  My  conclu- 
sion  is,  that  the  court  below  was  right  in  holding  that  thddefendant  ? 
could  not  set  up  the  breach  of  warranty  in  defense,  partial  or  total, 
to  the  suit  on  the  note;  and  as  the  warrant)-  presented  the  only 
ground  on  which  there  could  be  a  claim  of  defense  under  the  an- 
swer, there  is  no  necessity  for  considering  the  other  questions  pre- 
sented in  the  case. 

The  judgment  should  be  affirmed. 

All  judges  concurring. 

Judgment  affirmed. 


564  SURETYSHIP   DEFENSES 

JOHN  E.  LASHER,  RESPONDENT,  v.  WILLIAM  WILLIAM- 
SON ET  AL,  APPELLANTS,/ 

557V.  F.619  (1874). 

Appeal  from  judgment  of  the  general  term  of  the  Supreme  Court 
in  the  second  judicial  department,  affirming  a  judgment  in  favor  of 
plaintiff  entered  upon  the  decision  of  the  court  upon  trial  without  a 
jury. 

This  action  was  brought  against  defendants,  as  sureties  of  one 
Bernard  Gibbs,  to  recover  rent  alleged  to  be  due  upon  a  lessee  of  cer- 
tain premises  from  plaintiff  to  said  Gibbs. 

The  facts  appear  sufficiently  in  the  opinion. 

Johnson,  J.:  The  defendants  and  appellants  were  sureties  for 
one  Gibbs,  to  whom  the  plaintiff  had  executed  a  lease  under  seal  of 
certain  premises,  and  they  had  by  an  instrument  under  seal  cove- 
nanted that  Gibbs  should  pay  the  rent,  and  that  if  he  should  be  in 
default  they  would  pay  the  deficiency.  In  answer  to  the  plaintiff's 
action  for  the  unpaid  rent  the  defendants  gave  evidence  tending  to 
.show  that,  as  part  of  the  arrangement  between  Gibbs  and  the  plain- 
>-tiff,  the  latter  had  verbally  agreed  with  Gibbs  to  furnish  to  him 
during  the  period  of  the  lease  a  certain  quantity  of  property  to  be 
stored  upon  the  described  premises  at  an  agreed  price,  and  that  he 
had  furnished  only  a  part  of  the  quantity  promised,  and  failed  to 
furnish  the  residue.  Assuming,  in  favor  of  the  appellants,  that  no 
objection  to  this  proof  can  be  sustained  on  the  ground  that  it  is  sup- 
ported only  by  unwritten  evidence,  I  am  yet  of  opinion  that  it  gives 
them  no  defense  or  counterclaim  available  in  this  action.  It  was  the 
promise  to  furnish  the  storage  which  may  be  regarded  as  forming 
part  of  the  consideration  for  the  agreement  of  Gibbs.  The  breach 
of  that  promise  gave  him  a  cause  of  action  against  the  plaintiff,  but 
this  cause  of  action  in  favor  of  Gibbs  can  not  be  available  to  the 
appellants.  It  belongs  to  Gibbs  and  not  to  them.  The  case  falls 
within  the  principle  of  Gillespie  v.  Torrance  (25  N.  Y.  306). 

The  nonperformance  or  partial  performance  of  Lasher's  engage- 
ment to  Gibbs  is  not  to  be  regarded  as  a  failure  of  consideration,  but 
as  an  independent  cause  of  action,  which  Gibbs,  and  he  only,  may 
assert.  It  is  in  his  election  to  determine  whether  it  shall  be  used 
defensively,  or  whether  he  will  bring  his  own  action  for  the  dam- 
^  ages,  or  whether  he  will  forego  his  claim  altogether.  The  defend- 
ants have  no  control  over  him  in  this  respect  and  can  not  borrow 
and  avail  themselves  of  his  rights. 

The  judgment  must  be  reversed. 

All  concur. 

Judgment  affirmed. 

Accord :  Baltimore,  etc.,  R.  Co.  v.  Bitner,  15  W.  Va.  455,  36  Am.  Rep.  820, 
Contra :    Scroggin  v.  Holland,  16  Mo.  419 ;  Bechervaise  v.  Lewis,  L.  R.  7  G 
P.  372. 


SET-OFF   AND   COUNTERCLAIM  565 


L/>t^v<^ 


HENRY  WAGNER  v.  D.  W.  STOCKING  ET  AL. 


The  original  action  was  brought  in  the  court  of  common  pleas  of  - 
Geaug'a  county,  on  a  joint  and  several  note  given  by  the  defendants 
to  the  plaintiff.  The  defendants  answered  separately,  each  alleging^!  .  i 
that  the  defendant,  Stocking,  was  principal  in  the  note,  and  that  the 
defendant_S_niith  was  surety  only;  and  setting  up  an  account  due 
from  the  plaintiff  to  the  defendant  Stocking,  which  they  asked  might 
be  set  off  against  the  amount  due  on  the  note,  and  the  defendant 
Stocking  asked  for  a  judgment  in  his  favor,  for  the  balance  he 
claimed  to  be  due  on  the  account  above  the  amount  due  on  the  note. 
The  plaintiff  demurred  to  the  answers,  which  was  overruled.  He 
then  replied,  claiming  that  the  account  was  liquidated  in  a  settle- 
ment on  which  the  note  was  given  for  the  balance  due,  and  denied 
that  there  was  anything  due  thereon. 

On  the  trial  to  the  jury  the  defendants  offered  evidence  to  prove 
the  account,  to  which  the  plaintiff  objected,  on  the  ground  that  the  . 
account  due  to  one  of  the  defendants  only  was  not  a  proper  matter 
of  set-off  in  the  action ;  but  the  objection  was  overruled,  and  the  evi- 
dence admitted,  to  which  the  plaintiff  excepted. 

The  plaintiff  requested  the  court  to  charge  the  jury  that  if  they 
found  that  the  plaintiff  was  indebted,  at  the  commencement  of  the  ' 
action,  to  the  defendant  Stocking  only,  as  claimed  in  the  answers, 
and  not  to  both  of  the  defendants,  they  could  not  allow  the  account 
as  a  set-off  in  the  action,  which  instruction  the  court  refused  to 
give,  and  the  plaintiff  excepted. 

The  jury  found  the  amount  due  on  the  note,  and  the  amount  due 
on  the  account,  and  that  the  balance  due  the  defendant  Stocking 
was  four  dollars  and  eighty  cents;  and  thereupon  returned  a  verdict 
u"poTTThe  issue  in  favor  of  the  defendants.  The  plaintiff  moved  for 
a  new  trial,  by  reason  of  the  rulings  aforesaid,  which  was  over- 
ruled, and  the  plaintiff  excepted.  Judgment  was  rendered  in  favor 
of  the  defendants  for  costs,  and  in  favor  of  Stocking  for  the  bal- 
ance found  his  due.  To  reverse  this  judgment  the  plaintiff  prose- 
cuted his  petition  in  error,  in  the  district  court,  and  assigned  for 
error  the  rulings  of  the  court  against  him,  as  before  stated.  The 
case  was  reserved  in  the  district  court  for  decision  in  the  Supreme 
Court. 

Day,  J. :  It  appears  from  the  record  that  the  defendants  sustained 
the  relation  of  principal  and  surety  in  the  note  on  which  the  suit 
was  brought,  and  the  only  question  made  is,  whether  a  demand  due 
from  the  plaintiff  to  the  principal  alone  may  be  set  off  against  the 
claim  of  the  plaintiff.  The  only  objection  urged  against  it  is  the 
want  of  mutuality  between  the  demands. 


566 


SURETYSHIP    DEFENSES 


We  have  no  statute  defining  what  debts  or  demands  are  to  be 
deemed  mutual.  The  code  provides  (§  93)  that  "the  defendant  may 
set  forth,  in  his  answer,  as  many  grounds  of  defense,  counterclaim 
and  set-off  as  he  may  have,  whether  they  be  such  as  have  been 
heretofore  denominated  legal  or  equitable,  or  both."  But  what  is 
to  be  regarded  as  proper  matter  of  legal  or  equitable  set-off,  so  far 
as  relates  to  the  mutuality  of  claims,  is  left  to  be  determined  by  the 
rules  recognized  by  the  courts  of  this  country,  and  of  that  from 
which  the  principles  of  our  jurisprudence  are  so  largely  derived — 
subject,  however,  to  their  constructive  modifications  by  other  pro- 
visions of  the  code. 

It  is_  undoubtedly  well  settled,  as  a  Weneral  rule,  both  at  law  and 
in  equity,  that  joint  and  separate  debts~cah  not  be  set  off  against 
each  other.  But  whenever  the  character  of  the  joint  debt  is  such 
that  one  of  the  debtors  is  only  surety  for  the  other,  and  the  separate 
debt  is  due  to  the  principal  alone,  one  of  the  main  reasons  on  which 
the  general  rule  is  based  does  not  exist ;  for  the  debts  would  be  in 
reality  between  the  same  parties,  and  to  set  them  off  against  each 
other  would  not  complicate  the  rights  of  the  parties,  nor,  ordinarily, 
,  embarrass  the  litigation  of  the  claims.  On  the  contrary,  the  set-off 
might/settle  all  thejfight*  of  fhe  parties  in  one  action,  and  liquidate 
demands  that  in  justice,  between  all  the  parties,  ought  to  compensate 

each  other.  .  

#  Accordingly,  it  was  held  in  Mahurin  v.  Pearson,  8  N.  H.  539,  that 
"in  an  action  upon  a  promissory  note  against  principal  and  surety, 
a  demand  due  from  the  plaintiff  to  the  principal  may  be  set  off." 
This  decision,  as  gathered  from  the  opinion  delivered  in  the  case, 
seems  to  have  been  based  upon  the  equity  of  the  case,  requiring  the 
creditor,  who  owes  the  principal,  to  give  the  surety  the  benefit  of 
the  debt  which  he  owes  the  principal,  and  the  further  reason  that 
the  set-off  would  tend  to  prevent  multiplicity  of  actions. 

But  in  a  later  case  in  the  same  state  (Andrews  v.  Varrell,  46  N. 
H.  17),  where  the  general  rule,  that  demands,  to  be  set  off,  must  be 
natural,  was  strenuously  adhered  to,  it  was,  nevertheless,  said:  "It 
is  not  considered  as  conflicting  with  this  rule  to  offset  a  note,  signed 
by  a  principal  and  his  surety,  against  a  note  running  to  such  princi- 
pal alone,  the  debt  in  such  case  being  considered  as  the  debt  of  the 
principal."  Thus  it  seems  to  be  settled  in  that  state  that  the  debt, 
though  evidenced  by  a  joint  security,  being  in  reality  the  debt  of 
the  principal,  is  deemed  to  be  so  far  mutual  to  a  separate  demand 
of  the  principal  that  one  may  be  offset  to  the  other. 

Upon  the  ground,  coupled  with  the  strong  equity  in  favor  of  the 
set-off  in  such  cases,  the  courts  of  other  states  have  allowed  it  to  be 
done  in  actions  at  law,  though  not  especially  authorized,  as  in  seme 
of  the  states,  by  statutory  enactment.  Brundridge  v.  Whitcomb,  i 
Chip.  180;  Ashley  v.  Willard,  2  Tyler  391;  Stewart  v.  Coulter,  12 


SET-OFF    AND    COUNTERCLAIM  567 

S.  &  R.  252 ;  SolHdav  v.  Bissey,  12  Pa.  St.  347 ;  Leach  v.  Lambeth, 
14  Ark.  668;  Kent  v.  Rogers,  24  Mo.  306;  Newell  v.  Salmons,  22 
Barb.  647 ;  2  Par.  on  Notes  and  Bills  608. 

But  this  seeming,  and,  perhaps,  real  exception  to  the  general  rule, 
as  applied  to  actions  at  law,  unaided  by  statutory  provisions,  is  not 
unquestionable.  Our  code,  however,  as  we  have  seen,  authorizes 
the  defendant  in  an  action  to  set  up  an  equitable  as  well  as  a  legal 
set-off.  If,  therefore,  the  set-off  in  question  was  available  in  equity 
before  the  code  was  adopted,  it  is  equally  so  in  the  "civil  action"  by 
which,  under  its  provisions,  both  legal  and  equitable  remedies  are 
administered. 

In  matters  of  set-off,  equity  follows  the  law,  and  will  not  allow  a 
set-off  of  a  separate  debt  against  a  joint  debt,  except  where  the  cir- 
cumstances of  the  case  are  such  that  some  special  equity  may  be 
invoked  to  justify  such  an  interposition.  Thus,  in  Brewer  v.  Nor- 
cross,  17  N.  J.  Eq.  219,  it  is  said:  "In  cases  of  insolvency,  or  of 
joint  credit  given  on  account  of  individual  indebtedness,  or  where 
the  joint  debt  is  a  mere  security  for  the  separate  debt  of  the  prin- 
cipal, the  equity  is  obvious,  and  the  set-off  will  be  allowed."  So  in 
Downer  v.  Dana,  17  Vt.  518,  Redfield,  J.,  says:  "Although  a  court 
of  equity  will  not,  any  more  than  a  court  of  law,  allow  a  set-off  of  £^_= 
joint  debts  against  separate  debts,  yet  there  are  many  exceptions. 
One  important  exception  is,  where  the  debts  are  in  reality  mutual,  ( 
although  not  so  in  form,  as  where  one  of  the  joint  debtors  is  a  mere 
surety." 

It  has  sometimes  been  asserted  that  a  set-off  has  been  allowed  on 
this  ground  only  in  cases  of  insolvency,  and  that  the  practice  had  its 
origin  in  the  English  statute  relating  to  set-offs  in  bankruptcy ;  but 
this  denied  in  Ex  Parte  Hanson,  12  Ves.  346,  by  Lord  Erskine,  who 
decided  the  case  upon  equitable  principles  as  if  the  parties  were 
solvent,  and  said  that  he  was  "not  obliged  to  do  more  than  courts 
of  equity  were  in  the  habit  of  doing  before  the  statute  of  set-off 
existed."  The  case  was  this :  H.  and  W.  were  indebted  on  a  joint 
bond  to  C.  and  P.,  who  were  bankrupts,  and  were  indebted  to  H., 
who  was  principal  on  the  bond,  W.  being  surety  only.  The  assignee 
brought  suit  on  the  bond,  and  H.  petitioned  to  be  allowed  to  set  off 
his  demand  against  the  bond.  The  chancellor  held  that  the  assignee 
took  subject  to  all  the  "equities"  attaching  to  the  bankrupts,  if  they 
had  "continued  solvent,"  and  allowed  the  set-off,  on  the  equitable 
ground  of  preventing  circuity  of  actions,  on  account  of  the  joint 
bond  being  that  of  principal  and  surety. 

When  the  same  case  came  again  before  the  court,  on  the  master's 
report,  Lord  Eldon  approved  the  order  of  Lord  Erskine,  and  said 
that  it  was  "proper,  under  the  circumstances,  upon  this  ground ;  the 
joint  debt  was  nothing  more  than  a  security  for  the  separate  debt; 
and,  upon  equitable  considerations,  a  creditor  who  has  a  joint  se- 


568 


SURETYSHIP    DEFENSES 


curity  for  a  separate  debt  can  not  resort  to  that  security  without 
allowing  what  he  has  received  on  the  separate  account,  for  which 
the  other  was  a  security."   18  Ves.  232. 

Judge  Story  gives  us  an  instance  which  justifies  the  intervention 
of  a  court  of  equity  to  set  off  a  separate  debt  against  one  that  is 
joint,  that,  "if  one  of  the  joint  debtors  is  only  a  surety  for  the  other, 
he  may,  in  equity,  set  off  the  separate  debt  due  to  his  principal  from 
the  creditor;  for,  in  such  a  case,  the  joint  debt  is  nothing  more  than 
a  security  for  the  separate  debt  of  the  principal ;"  and  he  adds  that 
further  ground  of  equitable  interference  quoted  above  from  Lord 
Eldon.    2  Story's  Eq.,  §  1437. 

In  Dale  v.  Cooke,  4  Johns.  Ch.  11,  Chancellor  Kent  arrived  at  the 
conclusion  "that  joint  and  separate  debts  can  not  be  set  off  in  equity 
any  more  than  at  law."  But  he  seems  to  reconcile  this  view,  with  the 
right  of  a  surety  to  set  off  a  debt  due  from  the  creditor  to  the  prin- 
cipal, on  the  ground  that  a  joint  debt  is  nothing  more  than  a  security 
for  a  separate  debt  of  the  principal.  This  case  is,  therefore,  often 
cited  to  sustain  a  set-off  in  this  class  of  cases.  Indeed,  the  tendency 
of  the  American  courts  is  to  allow  the  set-off  in  such  cases,  on  the 
ground  that  the  real  debts  of  the  creditor  and  principal  are  mutual, 
though  one  may  be  evidenced  by  a  joint  security.  On  this  ground  a 
set-off,  which  in  justice  ought  to  be  made  between  the  parties,  is 
held  to  be  available  at  law.  But  however  this  may  be,  courts  of 
equity  lay  hold  of  the  case,  and  at  once  do  justice  to  the  parties,  and 
prevent  a  multiplicity  of  suits.  The  convenience  of  such  a  course  is 
a  strong  argument  in  its  favor ;  for  the  rights  of  all  the  parties  may 
thus  be  settled  in  one  action  instead  of  three,  which  might  only  re- 
sult in  taking  the  money  from  the  surety  on  the  joint  debt  by  the 
creditor,  and  from  him,  on  the  debt  of  the  principal  against  the 
creditor,  and  then  from  the  principal  to  the  surety,  leaving  the 
money  where  it  started.  The  set-off,  however,  will  do  equal  justice 
in  one  action,  and  let  the  money  remain  in  the  pocket  of  the  creditor. 

The  manifest  policy  of  the  code  is  to  obviate  such  circuity  of 
actions;  for  it  provides  (section  95):  "If  the  defendant  omit  to 
set  up  the  counter-claim  or  set-off,  he  can  not  recover  costs  against 
the  plaintiff  in  any  subsequent  action  thereon ;"  and  also  provides 
(section  385)  for  judgment  in  his  favor  for  any  excess  due  him 
on  the  set-off.  or  for  any  affirmative  relief  to  which  he  may  be  en- 
titled. Moreover,  the  equity  and  right  of  a  set-off  in  such  cases  is 
clearly  recognized  in  the  provision  of  the  code  (section  449)  for 
certifying,  in  a  judgment  against  principal  and  surety,  which  of  the 
defendants  is  principal,  and  which  is  surety;  and  in  directing  that 
the  property  of  the  principal  shall  be  taken  in  execution.  In  allow- 
ing such  set-off,  no  more  is  done  before  judgment  than  the  stat- 
ute requires  to  be  done  after  judgment  on  execution ;  indeed,  it  is 
the  only  manner  in  which  the  spirit  of  the  statute  can  be  made  avail- 
able without  another  action. 


SET-OFF   AND    COUNTERCLAIM  569 

Since,  then,  a  set-off,  in  cases  like  the  one  before  us,  might  have 
been  enforced  in  equity  if  not  at  law,  before  the  code  was  adopted, 
it  follows  that,  under  the  provisions  of  the  code,  it  may  be  done 
in  an  action  brought  under  it.  The  Court  of  Common  Pleas,  there- 
fore, did  not  .err  in  admitting  the  separate  debt  of  the  plaintiff  due  to 
the  principal  alone  to  be  set  off  against  the  joint  debt  of  the  prin- 
cipal and  surety.     The  judgment  must  therefore  be  affirmed. 

Accord :  Pickett  v.  Andrews,  135  Ga.  299,  69  S.  E.  478 ;  Reeves  v.  Cham- 
bers, 67  Iowa  81,  24  N.  W.  602. 

If  the  principal  is  insolvent,  the  surety  when  sned  alone  may  assert  the  set- 
off of  the  principal.  Jarratt  v.  Martin,  70  N.  Car.  459;  Scholze  v.  Steiner,  100 
Ala.  148,  14  So.  552 ;  Willoughby  v.  Ball,  18  Okla.  535,  90  Pac.  1017 ;  Hiner  v. 
Newton,  30  Wis.  640;  Becker  v.  Northway,  44  Minn.  61,  46  N.  W.  210,  20  Am. 
St.  543. 


- 


CHAPTER  V 

SUBROGATION 


SECTION  1.    NATURE  OF  THE  RIGHT  OF 
SUBROGATION 

MATHEWS  ET  AL.,  APPELLANTS,  v.  AIKIN,  RE- 
SPONDENT 


1  N.  Y.  595  (1848). 


Appeal  from  the  Supreme  Court  in  equity.  Abraham  Aikin  filed 
his  bill  in  the  court  of  chancery  before  the  vice-chancellor  of  the 
seventh  circuit,  against  John  Mathews  and  Oliver  Orcutt,  who  ap- 
peared and  defended,  and"against  Edward  Aikin,  who  suffered  the 
l5tTl~To-1re~tTrken  as  confessed.  The  case,  so  far  as  material  to  be 
stated,  upon  pleadings  and  proofs  was  as  follows:  On  or  before 
the  22d  of  November,  1837,  Edward  Aikin,  who  was  the  son  of. 
the  complainant,  executed  to  James  Hasbrook  a  bond  secured  by 
mortgage  on  certain  real  estate,  bearing  date  December  6,  1836, 
conditioned  for  the  payment  of  $1,300  in  six  equal  annual  instal- 
ments. At  the  time  of  the  execution  of  the  bond  and  mortgage  - 
Edward  Aikin  was  indebted  to  one  Theodore  Wood  in  the  amount 
thereof,  and  Wood  being  also  indebted  to  Hasbrook,  procured  the 
bond  and  mortgage  to  be  executed  directly  to  him.  At  the  time 
or  soon  after  the  bond  and  mortgage  were  given,  the  complainant  '  • 
at  the  solicitation  of  said  Wood  and  Hasbrook,  executed  upon  the  - 
bond  a  sealed  guaranty  of  the  payment  thereof.  There  was  no  evi- 
dence that  the  complainant  executed  the  guaranty  at  the  desire  or 
request  of  Edward  Aikin,  the  mortgagor.  Edward  Aikin  was  ex- 
amined as  a  witness  for  the  complainant,  and  on  cross-examina- 
tion testified  that  he  advised  his  father  not  to  sign  the  guaranty,  in- 
forming him  that  he  was  under  no  obligation  to  procure  a  guaranty.] 

On  the  27th  of  August,  1841,  the  said  Edward  Aikin  executed 
to  the  defendant  John  Mathews  a  mortgage  upon  the  same  prem- 
ises, conditioned  to  pay  the  sum  of  $663.36.     The  mortgage  to  Has- 


brook had  been  previously  recorded,  and  Mathews  had  also  actual 
notice  of  the  existence  thereof.  On  the  11th  of  February, 
1843,  Mathews  having  caused  his  mortgage  to  be  foreclosed  in 
chancery,  purchased  the  premises  at  master's  sale  under  the  de- 
cree for  the  sum  of  $500,  and  procured  the  master's  deed  to  himself. 

571 


572 


SUBROGATION 


After  such  purchase,  and  on  the  26th  of  April,  1843,  the  personal 
representative  of  James  Hasbrook  (who  had  died)  assigned  the 
bond  and  mortgage  first  above  mentioned  to  the  defendant  Oliver 
Orcutt.  The  consideration  for  this  assignment  was  paid  by 
Mathews,  and  such  assignment  was  made  in  trust  for  him  and  for 
his  benefit  only.  Immediately  afterward,  Mathews  caused  an  ac- 
tion at  law  to  be  commenced,  in  the  name  of  Hasbrook's  repre- 
sentatives, against  the  complainant  upon  the  aforesaid  guaranty, 
and  recovered  judgment  against  him  for  the  sum  of  $370.76,  the 
amount  of  the  last  instalment  due  upon  the  bond  and  mortgage,  the 
other  instalments  having  been  previously  paid.  The  complainant 
thereupon  tendered  the  amount  recovered  against  him  and  de- 
manded that  Orcutt  assign  the  bond  and  mortgage  to  him.  This 
was  refused ;  and  the  complainant  then  paid  absolutely  the  sum, 
and  demanded  an  assignment.  This  was  also  refused.  At  the  com- 
mencement of  this  suit  the  d_eJ^jiolaiir^JUaihe3ys__Y£asJnpo 
of  the  premises  under  his  purchase  at  the  master's  sale  above  men- 
tioned. Edward  Aikin  was  insolvent.  The  complainant  claimed  by 
"the  bill  to  be  subrogated  to  the  rights  of  Orcutt  or  Mn  thews  as  the 
holder  of  the  bond  and  mortgage  for  the  purpose  of  reimbursing 
to  himself  the  sum  collected  of  him  by  suit  on  the  guaranty  ;\and  the 
prayer  of  the  bill  was  that  such  right  of  subrogation  might  be  de- 
clared, and  that  the  premises  might  be  sold,  etc. 

The  vice-chancellor  decreed  in  favor  of  the  complainant  accord- 
ing to  the  prayer  of  the  bill.  The  defendants  appealed  to  the  chan- 
cellor, and  the  cause  then  became  vested  in  the  Supreme  Court  or- 
ganized under  the  new  constitution;  and  that  court  sitting  in  the 
fifth  district  affirmed  the  decree  of  the  vice-chancellor.  The  de- 
fendants appealed  to  this  court. 

Johnson,  J.:  It  is  a  general  and  well-established  principle  of 
equity,  that}  a  surety,  or  a  party  who  stands  in  the  situation  of  a 
surety,  is  entitled  to  be  subrogated  to  all  the  rights  and  remedies 
of  the  creditor  whose  debt  he  is  compelled  to  pay,  as  to  any  fund, 
lien  or  equity  which  the  creditor  had  against  any  other  person  or 
.  property  on  account  of  such  debt.  The  general  doctrine,  as  a  rule 
of  equity,  is  not  controverted  on  the  part  of  the  appellants,  but  is 
fully  conceded.  It  is  insisted,  however,  by  their  counsel,  that  the 
guarantor  in  this  instance  did  not  become  such  at  the  request  of  the 
debtor ;  that  as  to  the  debtor,  he  wras  a  mere  volunteer,  having  no 
remedy  over  against  him,  and  never  acquiring  the  character  of  a 
surety  so  as  to  be  entitled  to  be  subrogated  to  the  rights  and  rem- 
edies of  the  creditor. 

The  objection  seems  somewhat  narrow  and  technical  when  ad- 
dressed to  a  court  of  equity  whose  peculiar  province  is  to  mete  out 
substantial  justice  where  the  more  restricted  powers  of  the  common 
law  fail  in  its  administration.  But  it  leads  us  to  examine  carefully 
into  the  grounds  and  principles  upon  which  the  right  of  subroga- 


NATURE    OF    RIGHT  573 

tion  rests.  Does  it  rest  upon  the  foundation  of  a  contract  binding 
in  a  court  of  law  between  the  debtor  and  his  surety?  In  other 
words,  does  it  turn  substantially  upon  the  question  whether  or  not 
the  surety  who  has  paid  the  debt  to  the  creditor  has  a  remedy  over, 
on  his  contract,  against  the  principal  debtor  for  money  paid  in  an 
action  at  law?  Or  does  it  net  rest  rather  upon  the  broader  and 
deeper  foundations  of  natural  justice  and  moral  obligation?  Chan- 
cellor Kent  says,  in  Hays  v.  Ward  (4  John.  Ch.  130),  "This  doc- 
trine does  not  belong  merely  to  the  civil  law  system.  It  is  equally 
a  well-settled  principle  in  the  English  law  that  a  surety  will  be  ertO  (Jj~1: 
titled  to  every  remedy  which  the  principal  debtor  has,  to  enforce  / 
every  security,  and  to  stand  in  the  place  of  the  creditor,  and  have/ 
those  securities  transferred  to  him,  and  to  avail  himself  of  those  se-\ 
curities  against  the  debtor.  This  right  stands  not  upon  contract,/ 
but  upon  the  same  principle  of  natural  justice  upon  which  onej 
surety  is  entitled  to  contribution  against  another."  Lord  Brougham/, 
in  "Hodgson  v.  Shaw  (3  Mylne  &  Keene  183),  said:  "The  rule 
here  is  undoubted,  and  is  founded  on  the  plainest  principles  of  nat- 
ural reason  and  justice,  that  a  surety  paying  off  a  debt  shall  stand 
in  the  place  of  the  creditor,  and  have  all  the  rights  which  he  has 
for  the  purpose  of  obtaining  his  reimbursement.  It  is  scarcely 
possible  to  put  this  right  of  substitution  too  high ;  and  the  right  re- 
sults more  from  equity  than  from  contract  or  quasi  contract  unless 
in  so  far  as  the  known  equity  may  be  supposed  to  be  imported  into 
any  transaction,  and  so  as  to  revise  a  contract  by  implication."  Sir 
Samuel  Romilly,  in  his  argument  in  Craythorne  v.  Swinburne  (14 
Ves.  159),  stated  the  rule  to  be  that,  "a__sure_ty  will  be  entitled  to 
every  remedy  which  the  creditor  has  against  the  principal  debtor 
to_en force  every  security  by  all  means  of  payment,  to  stand  in  the 
place  of  the  creditor  not  only  through  the  medium  of  contract  but  - 
even  by  means  of  securities  entered  into  without  the  knowledge  of 
the  surety,  having  a  right  to  have  those  securities  transferred  to  him, 
though  there  was  no  stipulation  for  that,  and  to  avail  himself  of  all 
those~securities  against  the  debtor."  And  this  exposition  of  the  rule 
was  fully  sanctioned  by  Lord  Eldon  in  giving  judgment  in  that  case. 
The  equity  is  certainly  as  strong,  and  it  seems  to  me  somewhat 
stronger  in  favor  of  substitution,  as  against  the  creditor  at  least, 
than  it  is  between  sureties  for  contribution  where  one  has  paid  the 
whole  debt,  and  it  has  been  likened  to  the  case  of  contribution  be- 
tween sureties.  As  between  them  the  rule  in  equity  is  clear  that  the 
ground  of  relief  does  not  stand  upon  any  notion  of  mutual  contract 
express  or  implied,  but  arises  from  principles  of  equity  independent 
of  contract.  Story's  Eq.  493,  and  notes,  where  the  authorities  are 
all  collected.  This  is  also  substantially  the  rule  in  courts  of  law. 
(Norton  v.  Coons,  3  Denio  130).  In  that  case  the  circumstances 
under  which  the  defendant  became  cosurety  were  such  as  to  re^el 
the  presumption  of  any  promise  to  make  contribution.     But  the 


574 


SUBROGATION 


court  held  that  this  being  a  surety  on  the  same  contract  without 
qualification  in  terms  was  sufficient  to  fix  the  obligation  to  con- 
tribute, and  that  for  the  purposes  of  giving  the  plaintiffs  a  remedy 
the  court  would  presume  a  promise.  A  promise  was  therefore  im- 
puted where  none  confessedly  existed,  in  order  to  provide  a  remedy 
for  the  party  where  there  was  no  doubt  as  to  the  legal  liability ; 
and  the  legal  liability  in  such  cases  springs  from  the  equitable  obliga- 
tion ;  the  law  courts  having  borrowed  their  jurisdiction  in  these  par- 
ticular cases  from  the  court  of  equity.  In  the  present  case  it  seems 
to  me,  if  it  were  necessary,  a  court  of  equity  ought  to  imply  a 
promise  on  the  part  of  the  creditor  to  subrogate  the  surety  to  all 
his  rights  and  remedies,  in  case  he  resorted  to  the  latter  for  pay- 
ment of  the  debt  upon  his  guarantee.  The  equitable  obligation 
resting  upon  him  to  do  so  seems  to  me  most  manifest. 

It  is  true,  the  case  shows  that  the  principal  debtor  informed  the 
guarantor  that  he  was  under  no  promises  or  obligation  to  give  se- 
curity, which  seems  to  have  been  insisted  upon  by  the  creditor,  and 
that  he  advised  his  father  not  to  give  the  guaranty.  There  is  nothing 
however  in  the  case  to  show  that  the  debtor  did  not  subsequently 
assent  to  it,  even  at  the  time  the  guaranty  was  executed  or  that  the 
money  was  not  paid  at  his  express  request  afterward.  But  the  case 
does  show  that  the  guaranty  was  executed  at  the  repeated  and  ur- 
gent solicitations  of  Wood,  the  original  creditor,  and  of  Hasbrook, 
to  whom  Wood  proposed  to  transfer  the  debt,  and  to  whom,  by  ar- 
rangement between  them,  the  bond  and  mortgage  was  executed. 
As  to  the  creditor  Mathews,  therefore,  who  now  stands  in  the  place 
of  Hasbrook,  Abraham  Aikin  was  not  a  voluntary  surety  for  the 
"  debt  of  his  son,  but  became  so  at  his  express  request,  or  that  of 
the  mortgagee  under  whom  he  claims,  and  it  seems  to  me,  after 
Mathews  has  pursued  Abraham  Aikin  to  judgment  and  fixed  his 
liability  as  surety  for  his  son  in  a  court  of  law,  it  does  not  lie  with 
him  to  turn  round  and  say  he  is  a  mere  volunteer  in  assuming  the 
obligation  and  paying  the  money,  and  therefore  not  entitled  to  the 
rights  and  privileges  of  a  surety.  The  creditor  should  not  be  per- 
mitted in  a  court  of  equity  to  question  the  rights  of  the  surety 
after  the  obligation  has  been  incurred  at  his  request,  and  he  has 
fixed  the  character  upon  him  by  suit  and  judgment  in  a  court  of 
law.  As  to  him  at  least,  Aikin,  the  father,  was  surety  for  the  debt 
of  the  son,  and  was  compelled  to  pay  the  debt,  or  a  portion  of  it ; 
and  it  is  immaterial  as  to  the  creditor  what  the  state  of  the  case  is, 
or  the  legal  rights  are,  as  between  the  principal  debtor  and  the 
surety.  There  is  no  reason  why  the  creditor  should  set  up  a  de- 
fense for  the  debtor,  lit  is  sufficient  for' him  that  he  has  received^ 
his  debt  of  the  suretyJUe-ereate  the  obligation  on  his  parr  to  sur^" 
render  to  the  surety  the  securities  in  his  hands.  ;  He  is  not  to  liti- 
gate the  rights  of  the  debtor,  and  set  up  defenses  for  the  latter 
which  he,  peradventure,  might  be  too  honest  and  conscientious  to 


NATURE   OF    RIGHT 


575 


sec  up  against  the  securities  in  the  hands  of  a  surety  who  had  paid 
his  debt  for  him. 

It  might  be  different  if  the  debtor  himself  was  here  urging  this 
defense,  and  especially  if  he  was  able  to  show  that  the  surety  en- 
tered into  the  obligation,  not  only  against  his  wish  or  request,  but 
for  some  purpose  of  fraud  or  oppression,  or  to  make  him  his 
debtor  against  his  will,  or,  as  suggested  by  the  appellant's  counsel, 
to  compel  him  to  pay  a  debt  to  which,  as  between  him  and  the 
creditor,  he  had  a  good  defense  at  law.  In  such  cases  a  court  of 
equity  would  not  lend  the  surety  its  aid,  as  he  would  not  come  be- 
fore it  with  clean  hands.  But  this  is  no  such  case.  The  principal 
debtor  is  here  made  a  party,  and  suffers  the  bill  to  be  taken  as 
confessed  against  him.  He  sets  up  no  such  defense,  nor  does  he 
pretend  that  he  is  not  liable,  or  that  he  is  not  under  both  a  legal 
and  a  moral  obligation  to  his  surety  to  repay  the  money  which  the 
latter  has  advanced  for  him.  Indeed  he  expressly  swears  that  his 
father  was  a  mere  security  for  him  for  the  payment  of  the  bond, 
without  receiving  any  consideration  for  becoming  such  a  surety.  It  is 
true  he  also  testifies  that  he  advised  his  father  not  to  sign  the  guar- 
anty, but  it  is  obvious  to  my  mind  that  this  was  in  reference  to  a 
claim  made  by  the  creditor  upon  the  debtor,  that  he  was  under  some 
obligation  to  give  some  additional  security.  This  appears  to  me  " 
quite  evident  from  the  appellant's  answer  and  the  course  of  the 
examination.  It  is  sufficient,  however,  as  I  apprehend,  that  the 
debtor  sets  up  no  defense  of  the  kind,  and,  although  a  party,  admits 
the  validity  of  the  respondent's  claim  and  would  not  afterward  be 
heard  to  allege  it  was  illegal  or  invalid.  Could  the  appellant  Mathews 
be  permitted  to  set  up  a  defense  so  ungracious  as  against  a  surety 
whom  he  has  compelled  to  pay  his  debt,  he  would  be  bound  in  or- 
der to  make  it  complete  to  show,  as  I  think,  that  the  principal 
debtor  resisted  the  surety's  claim,  and  that  the  securities  in  the 
hands  of  the  latter  would  be  worthless,  inasmuch  as  he  could  never  > 
enforce  them  against  such  principal.  Otherwise  the  court  would 
intend  that  the  principal  was  willing  to  do  what  equity  required 
him  to  perform. 

But  in  addition  to  the  general  reasons  against  the  creditor's  re- 
sisting the  claim  of  the  surety  to  be  subrogated,  especially  when  the 
debtor  makes  no  objection,  there  is,  I  think,  in  this  case  a  partic- 
ular reason  why  the  appellant  Mathews  should  not  be  heard  to 
interpose  such  an  objection.  The  case  shows  that  he  held  a  junior 
mortgage  upon  the  same  premises  which  he  took  with  full  knowl- 
edge of  the  existence  of  the  present  mortgage  as  an  incumbrance 
upon  the  premises  and  subject  to  it ;  and  that  before  he  became  the 
purchaser  of  the  mortgage  in  question  through  Orcutt  his  trustee,  f 
he  had  foreclosed  such  junior  mortgage  and  became  Jiimself  the  - 
purchaser  of  the  equity  of  redemption.  At  the  time  therefore  that 
he  became  the  assignee  of  the  present  mortgage  he  was  the  owner 


576  SUBROGATION 

of  the  premises  subject  to  this  mortgage,  and  held  them  as  a  fund 
for  the  payment  of  his  debt.  (McKinstry  v.  Curtis,  10  Paige  503; 
Russell  v.  Allen,  id.  249 ;  Cox  v.  Wheeler,  7  id.  248 ;  Tice  v.  Annin, 
2  John.  Ch.  125.)  It  presents  therefore  the  case  of  a  creditor  with 
the  fund  pledged  for  the  payment  of  the  debt  in  his  hand,  under 
circumstances  which  make  it  an  inequitable  satisfaction  of  the  debt, 
collecting  the  debt  over  again  out  of  the  surety,  and  then  refusing 
to  surrender  the  fund  to  him.  The  legal  presumption  is  that 
Mathews,  when  he  purchased  the  premises  at  the  sale  under  his 
junior  mortgage  only  bid  to  the  value  of  the  equity  of  redemption, 
and  he  must  be  adjudged  to  hold  them  subsequently  as  a  fund  for 
the  satisfaction  of  the  prior  incumbrance.  And  he  might  have 
been  restrained  in  equity  from  proceeding  to  collect  the  debt  after- 
ward from  the  mortgagor,  or  in  case  the  latter  had  paid  it,  he 
would  have  been  entitled  to  have  the  mortgage  foreclosed  upon  the 
premises  for  his  benefit — within  the  principle  of  the  cases  last  above 
cited. 

At  the  same  time  Abraham  Aikin  was  sued  upon  his  guaranty 
he  was  ignorant  that  the  assignment  of  the  securities  had  been  made 
to  Orcutt  as  a  mere  trustee  for  Mathews,  who  was  already  the 
owner  of  the  premises.  And  unless  I  greatly  mistake  the  case,  it 
exhibits  strong  marks  of  contrivance  on  the  part  of  Mathews  to 
discharge  the  premises  from  the  incumbrance  of  the  mortgage  at  the 
expense  of  Abraham  Aikin.  It  seems  to  me  quite  clear,  from  the 
facts  of  this  case,  that  the  defense  ought  not  to  prevail. 

But  upon  the  general  doctrine  of  subrogation,  I  agree  fully  with 
the  learned  judge  who  delivered  the  opinion  of  the  Supreme  Court, 
|  that  'the  right  of  the  surety  to  demand  of  the  creditor  whose  debt 
he  has  paid,  the  securities  he  holds  against  the  principal  debtor  and 
to  stand  in  his  shoes,  does  not  depend  at  all  upon  any  request  or 
\  contract  on  the  part  of  the  debtor  with  the  surety,  but  grows  rather 
i  out  of  the  relations  existing  between  the  surety  and  the  creditor, 
/  and   is    founded   not   upon   any   contract,   express   or    implied,   but 
springs  from  the  most  obvious  principles  of  natural  justice.      And 
if  it  were  true  that  the  surety  in  such  a  case  as  this  could  maintain 
no  action  at  law  against  his  principal  for  the  money  paid,  I  agree 
with  the  Supreme  Court  that  it  would  furnish  a  still  stronger  case 
for  subrogation.     A  court  of  equity  would  never  presume  that  the 
^principal  would  interpose  such  a  defense.    (If  the  creditor  has  in- 
sisted upon  the  surety's  discharging  his  obligations  and  liabilities 
I   as  such,  and  fastened  the  character  upon  him  by  a  judgment,  he 
I   can  not,  after  receiving  from  him  his  debt,  turn  round  and  deny  him 
Mthe  rights  of  a  surety.     The  creditor  must  then  fulfil  his  obligation 
to  the  surety,  and  leave  the  latter  and  his  principal  to  adjust  or  liti- 
gate their  rights  or  claims  as  they  may  see  fitJ^There  is  no  hard- 
ship  in  this.     The  surety  might  have  filed  his  bill  and  compelled 
Mathews  to  collect  the  debt  out  of  his  principal  through  the  mort- 


NATURE   OF    RIGHT  5// 

gage  before  resorting  to  him.  And  in  such  a  proceeding  Mathews 
might  with  the  same  propriety  have  set  up  as  a  defense  that  the 
surety  was  a  mere  volunteer  and  could  have  no  redress  against  his 
principal,  and  ought  not  to  insist  upon  his  proceeding  against  the 
principal  in  the  first  instance.  The  injustice  of  the  defense  might 
be  a  little  more  apparent  in  that  case,  but  none  the  more  real.  Had 
Abraham  Aikin  owned  the  mortgage  and  assigned  it  to  Mathews 
or  to  his  trustee  with  his  guaranty  upon  it  at  his  request,  no  one, 
I  apprehend,  would  pretend  that  Aikin,  upon  payment  on  his  guar- 
antee, would  not  be  entitled  to  have  the  mortgage  again  from  the 
creditor.  How  is  his  equity  weakened  by  the  consideration  that  to 
enable  Wood  the  mortgagee  to  sell  it  to  Hasbrook  he,  at  the  request 
of  both  Hasbrook  and  Wood,  became  the  guarantor?  It  seems  to 
me  to  be  considerably  strengthened  by  the  fact  that  he  derived  no 
benefit  from  the  transfer — especially  as  a  doubt  has  been  raised  as 
to  his  remedy  over  at  law  for  money  paid  against  the  mortgagor. 
If  Hasbrook  would  have  been  bound  to  surrender  to  Wood,  had  he 
been  the  guarantor  and  made  payment,  I  do  not  see  .why  he  is  not, 
to  the  representative  of  Aikin,  who  became  guarantor  for  the  benefit 
and  at  the  request  of  both  Wood  and  Hasbrook. 
Decree  affirmed. 

See  also  McCormick  v.  Irwin,  35  Pa.  St.  111. 


LEVI  H.  MILLER  v.  EMANUEL  J.  STOUT,  HENRY  TODD 
AND  WILLIAM  A.  ATKINSON 

5  Del.  Ch.  259  (1878). 

The  Chancellor:     *When  a  surety  or  guarantor  pays  a   AehfV     /,, 

of  a  principal,  equity  substitutes  him  in  the  place  of  a  creditor,  as  \ 
a  matter  of  course,  without  any  special  agreement  to  that  effect. 

Subrogation  does  not  rest  in  contract,  but  is  an  equity  resulting  ^ 
from  the  circumstances  of  the  particular  case. 

Tt  is  enforcilile  in  equity  tribunals,  because  it  is  a  matter  resting 
in  conscience  and  not  in  consent. 

•Upon  the  performance,  by  the  surety,  of  his  contract  of  surety- 
ship, he  is  entitled  to  the  original   evidence   of   debt  held  by  the   I 
creditor,  and  to  any  judgment  into  which  the  debt  has  been  merged, 
as  well  as  to  all  collateral  securities  held  by  the  creditor. 

By  performing  the  contract  of  suretyship,  the  principal  obliga- 
tion is  discharged  as  respects  the  creditor,  but  is  kept  alive  between 

*Part  of  the  opinion  omitted 
37— De  Witt. 


578  SUBROGATION 

the  creditor,  the  debtor,  and  the  surety,  for  the  purpose  of  enforcing 
the  rights  of  the  surety. 

Subrogation  is  a  mode  which  equity  adopts  to  compel  the  ulti- 
mate discharge  of  a  debt  by  him  who,  in  good  conscience,  ought  to 
pay  it,  and  to  relieve  him  whom  none  but  the  creditor  could  ask 
to  pay. 

Being  purely  an^  equitable  right,  it  is  limited  only  by  equitable 
considerations.  It  is  not  available  or  enforcible  when  there  are  sub- 
sisting and  countervailing  equities  which  forbid  it. 

He  who  asks  it  must  work  out  his  equities  through  those  of  the 
party  to  whose  equities  he  seeks  to  be  substituted.  He  can  have 
no  equity  if  such  party  has  no  equity.  Hjs  equity  must  be_cjear, 
and  not  doubtful.  While,  as  between  him  and  the  person~to~~whose 
rights  and  equities  he  would  be  subrogated — as  in  the  case  of 
Huston's  Appeal,  69  Pa.  485,  referred  to  in  the  argument — there 
may  be  priority  of  right  or  claim  or  equity,  there  can  be  none 
against  the  party  against  whom  he  seeks  subrogation,  unless  it  is 
equitable  as  between  that  party  and  the  party  through  whom  he 
seeks  to  be  subrogated.  In  other  words,  if  the  equity  he  seeks 
would  not  be  enforcible  in  equity  tribunals  by  the  party  through 
whom  he  seeks  its  enforcement  against  the  party  against  whom  it 
is  sought  to  be  enforced,  then  it  is  not  enforcible  by  him  as  a  party 
entitled  to  be  substituted  to  an  original  equity. 

In  Journal  Publishing  Co.  v.  Barber,  165  N.  Car.  478,  81  S.  E.  694,  Walker, 
J.,  says  in  part :  "Let  us  consider  for  a  moment  the  elementary  conception  of 
subrogation  and  its  primary  elements.  It  is  the  substitution  nf  another  person 
in  the  place  of  a  creditor,  so  that  the  person  in  whose^avor_it-is_exircised 
succeeds  to  the  rights  of  the  creditor  in  relation  to  the  debt.  The  doctrine  is 
one  of  equity  and  benevolence,  and,  like  contribution  and  other  similar  equi- 
table rights,  was  adopted  from  the  civil  law,  and  its  basis  is  the  doing  of  com- 
plete, essential  and  perfect  justice  between  all  the  parties  without  regard  to 
form,  and  its  object  is  the  prevention  of  injustice.  The  righ±jdaes_no_t  neces- 
sarily rest  on  contract  of  privity,  but  upon  principle  of  natural  equqity,  and 
does  not  depend  upon  the  act  of  the  creditor,  but  may  be  independent  of  him 
and  also  of  the  debtor.  While  subrogation  is  not  founded  on  contract,  there 
must,  in  every  case,  where  the  doctrine  is  invoked,  in  addition  to  the  inherent 
justice  of  the  case,  concur  therewith  some  principle  of  equity  jurisprudence 
as  recognized  and  enforced  by  courts  of  equity.  Where  the  right  of  subroga- 
tion exists,  it  is  subject  to  prior  equities  and  all  the  rules  of  equity.  The 
subrogation  just  described  is  generally  referred  to  as  legal  subrogation  to 
differentiate  it  from  conventional  subrogation  or  subrogation  arising  from 
express  contract  between  the  payer  and  the  debtor  and  creditor  that  the 
payer  shall  be  subrogated,  rather  than  from  the  automatic  operation  of  a 
rule  of  law  upon  a  given  set  of  circumstances.  Conventional  subrogation  or 
subrogation  by  act  of  parties  may  take  place  by  the  debtor's  agreement  that 
one  paying  a  claim  shall  stand  in  the  creditor's  shoes,  and  furthermore  can 
arise  only  by  reason  of  an  express  or  implied  agreement  between  the  payer 
and  either  the  debtor  or  the  creditor,  and  the  agreement,  like  other  agree- 
ments, must  be  supported  by  a  consideration.  It  is  not  essential  to  subroga- 
tion by  convention  that  the  creditor  should  be  a  party  to  the  agreement  be- 
tween the  debtor  and  a  third  party,  provided  no  intervening  rights  to  the 


NATURE    OF    RIGHT  579 

security  have  occurred ;  but  subrogation  by  convention  is  not  applicable 
where  it  would  prejudice  the  rights  of  innocent  parties.  37  Cye.,  pp.  363  et 
seq.  The  nature  and  grounds  of  subrogation  are  very  clear.  The  difficulties 
arise  in  its  application  to  the  innumerable  complications  of  business.  The 
courts  incline,  however,  rather  to  extend  than  to  restrict  the  principle,  and 
the  doctrine  has  been  steadily  growing  and  expanding  in  importance,  and  is 
becoming  more  general  in  its  application  to  various  subjects  and  classes  of 
persons,  the  principle  being  modified  to  meet  the  circumstances  of  cases  as 
they  have  arisen." 


!y\\ 


LKA^ 


c 


LEWIS'  ADMR.  ET  AL.  v.  THE  UNITED  STATES  FI- 
DELITY &  GUARANTY  CO.  ET  AL. 

144  Ky.  425,  138  6".  W.  305,  Ann.  Cas.  1913A,  564n  (1911). 

The  question  raised  upon  this  appeal'  is,  may  a  surety  upon  a  distil- 
ler's bond,  who  has  been  compelled  to  pay  to  the  government  money 
for  its  principal,  be  subrogated  to  the  rights  of  the  government,  and 
subject  the  properly  which  was  in  lien  to  the  government  in  satis- 
factiQn^_ol_its  debt?  The  lower  court  held  that  the  surety  was  en- 
titled to  this  right.  It  is  insisted  that  this  ruling  is  wrong,  for  the 
itwofold  reason,  first,  that  section  3465  of  the  federal  statute  in 
express  terms  denies  to  a  surety  upon  a  distiller's  bond  the  right  of 
subrogation,  and,  second,  that  as  the  surety  in  this  case  was  com- 
pensated for  its  service,  it  was' not  entitled  to  the  same  rights  and 
benefits  as  an  accommodation  surety. 

As  to  the  first  proposition,  the  section  of  the  statute  relied  upon, 
to  wit,  3465,  is  a  part  of  the  Act  of  June  30,  1864,  relating  to  in- 
ternal revenue,  and  it  reads  as  follows: 

"An  act  entitled  'An  act  further  to  provide  for  the  collection  of 
duties  on  imports,'  passed  March  2,  1833,  shall  not  be  so  construed 
as  to  apply  to  cases  arising  under  an  act  entitled  'An  act  to  provide 
internal  revenue  to  support  the  government  to  pay  the  interest  on 
the  public  debt  and  for  other  purposes,'  passed  June  30,  1864,  or 
any  act  in  addition  thereto  or  in  amendment  thereof,  nor  to  any  case 
in  which  the  validity  or  interpretation  of  said  act  or  acts  shall 
be  in  issue."  r-*-""1 

The  Act  of  1833  here  referred  to  was  an  act  providing  for  the 
collection  of  debts  due  by  or  to  the  government,  and  in  said  act^ 
there  is  a  provision  defining  and  fixing  the  rights  of  sureties  who 
were  compelled  to  pay  the  debt  of  their  principal.  The  Act  of  1864 
(makes  no  provision  for  the  protection  of  sureties,  and  hence  the 
[rights  of  sureties  not  being  fixed  by  the  act,  and  there  being  noth- 
ing in  the  act  denying  to  them  the  right  of  subrogation,  their  rights 
must  be  determined  by  the  common  law. 

At  common  law  it  is  well  settled  that  one  who  is  compelled  to 
pay  the  debt  of  another  is  entitled  to  be  substituted  to  the  rights 


580  SUBROGATION 

of  the  creditor.  As  stated  by  Pomeroy  in  his  Equity  Jurispru- 
dence, Vol.  6,  §  921 : 

"Payment  of  the  debt  of  another,  as  by  a  mere  volunteer,  will 
not,  of  itself,  entitle  the  party  making  the  payment  to  subrogation. 
Equity  will  relieve,  in  general,  only  those  who  could  not  well  have 
relieved  themselves,  and  these  may  be  divided  roughly  into  the 
three  classes  already  suggested,  that  is :  First,  those  who  act  in 
performance  of  a  legal  duty,  arising  either  by  express  agreement 
or  by  operation  of  law ;  second,  those  who  act  under  the  necessity 
of  self-protection;  third,  those  who  act  at  the  request  of  the  debtor, 
directly  or  indirectly,  or  upon  invitation  of  the  public,  and  whose 
payment  are  favored  by  public  policy. 

"When  a  party  discharges  an  obligation  in  performance  of  a 
legal  duty — that  is,  an  obligation  for  the  performance  of  which  he 
was  legally  bound — but  for  which  his  liability  was  subsequent  to 
that  of  another  party,  he  is  entitled  to  be  subrogated  to,  and  to  have 
the  benefit  of,  all  rights  of  the  creditor  and  all  securities  which 
|  may  at  any  time  be  put  into  the  creditor's  hands  by  a  party  whose 
';  liability  is  prior  to  his  own,  or  which  the  creditor  may  have  ob- 
tained from  such  party." 

The  same  rule  is  thus  stated  in  A.  &  E.  Encyc.  of  Law,  2d  ed., 
Vol.  27,  p.  207: 

"The  general  rule  is  that  |a  surety  who  pays  the  debt  of  his  prin- 
cipal will  be  subrogated  to  all  the  securities,  liens,  and  equities, 
rights,  remedies  and  priorities  held  by  the  creditor  against  the  prin- 
cipal, and  entitled  to  enforce  them  against  the  latter  in  a  court  of 
equity  or  of  equitable  jurisdiction.  His  right  to  subrogation  is 
not  affected  by  the  fact  that  he  made  no  stipulation  therefor  at 
the  time  of  payment  of  the  debt  of  his  principal,  nor  by  the  fact 
that  he  was  then  ignorant  of  the  existence  of  such  right ;  nor  will 
the  right  be  denied  him  on  the  ground  that  he  assumed  the  obliga- 
tion without  being  requested  to  do  so  by  his  principal." 

The  decisions  of  this  court,  as  found  in  Highland  v.  Anderson, 
17  S.  W.  866;  Dunlap  v.  O'Brannon,  5  B.  Mon.  393;  Burk  y. 
Chrisman,  3  B.  Mon.  50,  support  the  principle  that  a  surety  who  is 
compelled  to  pay  the  debt  of  his  principal  is  entitled  to  subroga- 
tion. Unless  this  right  to  the  surety  must  be  denied  because  it  has 
been  compensated  for  its  service  in  becoming  surety,  the  judgment 
must  be  affirmed. 

We  are  cited  to  no  authority  from  any  court  of  last  resort  de- 
nying to  a  surety  the  right  to  subrogation  because  he  was  a  com- 
pensated or  paid  surety.  ; Subrogation  is  allowed  because  the  surety 
has  paid  the  debt  of  his  "principal.  Upon  this  ground  the  right 
reslsj  The  question  as  to  what  induced  the  surety  to  assume  the 
obligation  can  not  be  considered  in  determining  his  rights.  The 
sole  question  is,  has  he  been  compelled  to  pay  the  debt  of  his  prin- 
cipal?  If  he  has  he  is  entitled  to  be  subrogated  to  the  rights  of  the 


PARTIES    ENTITLED  581 

creditor.  It  is  common  knowledge  that  guaranty  companies  have 
for  many  years  been  accepted  as  surety  upon  the  bonds  of  fidu- 
ciaries, public  officials,  and  others  occupying  relations  of  confidence  .. 
and  trust.  Many  times  in  innumerable  instances  and  forms  their 
right  to  subrogation  has  been  asserted  and  upheld.  This  right,  so 
far  as  we  are  advised,  has  never  been  questioned,  and  certainly 
not  denied. 

The  case  of  Champion  Ice  Mfg.  &  Cold  Storage  Co.  v.  American 
Bonding  Co.,  115  Ky.  863,  cited  and  relied  upon  by  appellant,  in 
support  of  his  contention,  that  a  compensated  surety  is  not  entitled  • 

to  subrogation,  is  not  in  point.  The  obligation  assumed  by  the 
bonding  company  was  not  a  contract  of  suretyship  at  all.  It  be- 
came the  insurer  of  the  honesty  of  an  employe.  It  alone  signed 
the  bond,  and  this  obligation  was  treated  as  a  policy  of  insurance 
and  its  liability  fixed  and  determined  by  placing  upon  the  bond  that 
construction  which  has  been  adopted  in  determining  the  rights  of 
litigants  under  policies  of  insurance. 

Perceiving  no  error  in  the  judgment  it  is  affirmed. 

The  surety  is  entitled  to  be  subrogated  to  securities  in  the  hands  of  the 
creditor  whether  he  had  knowledge  of  them  or  not  and  whether  they  were 
acquired  by  the  creditor  before  or  after  he  signed  as  surety.  Lake  v.  Brutton, 
8  DeG.,  M.  &  G.  440;  Dempsey  v.  Bush,  18  Ohio  St.  376.1^ 

■ 


SECTION  2.    PARTIES  ENTITLED  TO  THE  RIGHT 

(a)    One  in  Situation  of  a  Surety; 

SCOTT'S  APPEAL  . 

88  Pa.  St.  173  (1878). 

Appeal  of  Samuel  W.  Scott,  receiver  of  the  National  Bank  of 
Waynesburg,  from  the  decree  of  the  court  dismissing  his  excep- 
tion's" to  the  report  of  the  auditor  appointed  to  make  distribution 
ofThe  proceeds  of  the  sheriff's  sale  of  the  real  estate  of  Godfrey 
Gordon. 

The  auditor  found  that  B.  F.  Flenniken,  who  had  been  a  mem-T 
ber  of  the  firm  of  Gordon,  Campbell,  Courtney  &  Co.,  during  a 
period  of  about  six  months,  retired  from  the  firm  in  June,  1872, 
leaving  Gordon  and  Campbell  still  members,  Courtney  having  also 
retired  about  the  same  time.  That  Flenniken's  withdrawal  was 
entirely  voluntary,  with  the  mutual  consent  of  the  remaining  part- 
ners, and  with  the  agreement  that  he  was  to  go  out  of  the  firm 
without  profit,  and  that  Gordon  and  Campbell,  the  remaining  mem- 
bers, were  to  pay  the  debts  of  the  firm,  inclnrh^^jhe  _mnf  f>f  the 


582 


SUBROGATION 


storeroom  and  warehouse  which  they  had  rented  in  December, 
1871,  when  the  partnership  was  formed,  from  John  Hays,  in  the 
city  of  Pittsburgh.  That  John  Hays  brought  suits  in  the  common 
pleas  court  of  Greene  county,  Pa.,  to  Nos.  293  December  term, 
1873,  and  180  June  term,  1874,  for  two  quarters'  rent  of  the  store- 
room and  warehouse,  and  judgments  obtained  against  Godfrey  Gor- 
don, B.  F.  Campbell  and  B.  F.  Flenniken,  no  service  being  had  upon 
Courtney.  The  judgment  of  the  appellant,  Scott,  against  Gordon 
was  to  No.  212,  June  term,  1875.  On  April  6,  1874,  and  January 
25,  1875,  respectively,  Flenniken  paid  the  two  judgments  of  Hays, 
and  took  assignments  thereof.  The  auditor  decided  that  Flenniken, 
holding  these  two  judgments,  was  entitled  to  be  subrogated  to  the 
rights  of  Hays  as  against  Gordon  and  Campbell,  and  to  share  in 
the  proceeds  of  Gordon's  property.  Scott  filed  exceptions  to  this 
report  which  the  court  dismissed,  and  hence  this  appeal. 

Per  curiam.  [Ajjartner  who... goes  out  and  for  a  valuable-con- 
sideration is  indemnified  by  his  partners  against  all  debts  and  lia- 
bilities of  the  firm,  stands  in  the  attitude  of  a  stranger,  as  against 
a  creditor  of  one  of  the  partners  for  his  individual  debt,  whose 
judgment  has  been  obtained  since  his  outgoing.  He  is  therefore 
entitled  to  subrogation  for  a  debt  of  the  firm  paid  by  him  for  which 
he  was  not  liable  as  between  himself  and  partners  at  the  time  of 
leaving  the  firm. 

Decree  affirmed,  with  costs  to  be  paid  by  the  appellant,  and  appeal 
dismissed. 

See  also  Swan  v.  Smith,  57  Miss.  548. 


(b)    One  Who  Pays  as  a  Mere  Volunteer 
CALEB  A.  L.  SHINN  v.  THEODORE  BUDD 

V 

14  N.  J.  Eq.  234  (1862). 

The  Chancellor:  On  the  nineteenth  of  July,  1852,  Charles 
Cotton,  being  seized  in  fee  of  a  house  and  lot  in  Southampton, 
mortgaged  the  same  to  secure  the  payment  of  $225  to  Isaac  Hil- 
liard.     The  mortgage  was  subsequently  assigned  to  Andrew  Fort. 

On  the  first  of  March,  1856,  Cotton  died,  and  letters  of  admin- 
istration upon  his  estate  were  granted  to  Shinn,  the  complainant. 
The  personal  estate  proving  insufficient  to  pay  the  debts,  the  ad- 
ministrator obtained  an  order  of  the  orphans  court  to  sell  the  real 
estate  of  the  decedent  for  the  payment  of  debts.  In  pursuance  of 
this  order,  the  mortgaged  premises  were  advertised  for  sale  by  the 
administrator,  and  were  struck  oft  and  sold  to  John  Johnson   for 


- 


PARTIES    EXTITLED  583 


$365.52.  So  far  as  appears  by  the  evidence,  neither  the  advertise- 
ment, the  conditions  of  sale,  the  report  of  sale  by  the  administrator, 
or  the  decree  of  confirmation,  contain  any  reference  whatever  to 
the  incumbrance  upon  the  premises.  On  the  thirteenth  of  Novem- 
ber,  1856,  a  deed,  in  pursuance  of  the  sale,  was  executed  by  the  " 
administrator  to  the  purchaser.  On  the  twenty-third  of  March, 
1857,  the  title  became  vested  in  Thomas  Kealy.  Kealy  died  on 
the  twentieth  of  June,  1858.  The  land  was  sold,  under  an  order 
of  the  orphans  court,  by  his  administratrix  for  the  payment  of 
debts,  and  on  the  twenty-first  of  May,  1860,  the  title  became  vested 
in  Budd,  the  defendant. 

On  the  thirtieth  of  March,  1857,  the  complainant  paid  to  Andrew 
Fort,  the  assignee  of  the  mortgage,  $112,  the  balance  of  principal 
and  interest  remaining  due  and  unpaid  upon  the  mortgage  debt,  and  ' 
took  his  receipt  therefor  upon  the  bond.  The  bill  is  filed  to  en- 
force the  incumbrance  of  the  mortgage  against  the  land  in  the 
hands  of  the  defendant.  The  complainant  asks  to  be  substituted 
in  the  place  of  the  assignee  of  the  mortgage,  and  to  be  subrogated 
to  his  rights.  The  ground  upon  which  the  relief  is  asked  is,  that 
the  purchaser  at  the  administrator's  sale  took  his  title  subject  to 
the  mortgage ;  that  the  sum  due  upon  the  mortgage  was  deducted 
from  the  amount  of  the  purchase-money,  and  that  the  mortgage" 
debt  was  paid  by  the  complainant,  not  as  administrator,  out  of  > . 
funds  belonging  to  the  estate  of  Cotton,  but  out  of  his  own  funds. 
The  complainant's  case,  assuming  it  to  be  fully  sustained  by  evi- 
dence, is  briefly  this :  As  administrator  of  the  estate  of  Cotton,  he 
sold  the  real  estate  of  the  intestate,  by  order  of  the  orphans  court,  \ 
for  the  payment  of  debts.  The  property  was  sold  for  $365.52,  the 
consideration  expressed  in  the  deed  of  conveyance,  this  constituting 
the  entire  value  of  the  land  clear  of  incumbrances.  The  amount 
due  upon  the  mortgages,  $112,  was  not  paid  by  the  purchaser. 
After  the  sale,  the  mortgage  debt  was  paid  by  the  complainant  to 
the  holder  of  the  mortgage,  who  indorsed  upon  the  bond  a  receipt 
in  full  of  the  debt.  There  was  no  assignment  of  the  bond  and 
mortgage.  The  estate  of  Cotton  was  settled  as  if  the  purchase-money 
had  been  paid  in  full  by  the  purchaser.  It  was  in  fact  advanced  by 
the  complainant  out  of  his  own  funds.  The  mortgage  remains  in  his 
hands  uncanceled  of  record.  *  This  is  stating  the  case  most  fa- 
vorably for  the  complainant.  He  now  comes  into  court  seeking  to 
enforce  the  mortgage  against  those  claiming  under  his  own  grantee. 
He  does  not  claim  to  hold  the  mortgage  by  assignment ;  but  he  asks, 
by  subrogation,  to  be  substituted  in  the  place  of  the  mortgagee,  and 

to  succeed  to  his  rights.  

Subrogation  as  a  matter  of  xight.  as  .it  exists  in  jthe  civil   law. 

7  from  which  the  term  has  been  borrowed £and  adopted  in  our  own, 

Lis  never  applied   in  aid  of  a  mere '  volunteer.  -' Legal    substitution 

into \ the  rights   of  accreditor,"  for. 'the' benefit, '"of   a   third   person, 


584 


SUBROGATION 


takes  place  only  for  his  benefit,  who  being  himself  a  creditor,  sat- 
isfies the  lien  of  a  prior  creditor,  or  for  the  benefit  of  a  purchaser 
who  extinguishes  the  incumbrances  upon  his  estate,  or  of  a  co- 
obligor  or  surety  who  discharges  the  debt,  or  of  an  heir  who  pays 
the  debts  of  the  succession.  Code  Napoleon,  Book  3,  art.  1251 ; 
Civil  Code  of  Louisiana,  art.  2157;  1  Pothier  on  Oblig.,  Part  3, 
ch.  1,  art.  6,  2. 

"We  are  ignorant,"  say  the  Supreme  Court  of  Louisiana,  "of 
any  law  which  gives  to  the  party  who  furnishes  money  for  the 
payment  of  a  debt  the  rights  of  a  creditor  who  is  thus  paid.  The 
legal  claim  alone  belongs  not  to  all  who  pay  a  debt,  but  only  to 
him  who,  being  bound  for  it,  discharges  it."  Nolte  &  Co.  v.  Their 
Creditors,  9  Martin  602 ;  Curtis  v.  Kitchen,  8  Martin  706 ;  Cox  v. 
Baldwin,  1  Miller's  Louis.  R.  147. 

The  principle  of  legal  substitution,  as  adopted  and  applied  in 
our  system  of  equity  has,  it  is  believed,  been  rigidly  restrained 
within  these  limits. 

In  The  Book  of  the  United  States  v.  Winston's  Executors,  2 
Brocken.  R.  254,  Chief  Justice  Marshall  said:  "If  a  security  not 
assignable  be  discharged  by  a  surety  whom  it  binds,  equity  keeps 
it  in  force  in  his  favor,  and  puts  such  surety  in  the  place  of  the 
original  creditor.  But  I  think  there  is  no  case  in  which  this  has 
been  done  in  favor  of  a  person,  not  bound  by  the  original  security, 
who  discharges  the  debt  as  a  volunteer." 

In  Gadsden  v.  Brown,  1  Speer's  Eq.  R.  41,  Johnson,  chancellor, 
says :  The  doctrine  of  subrogation  is  a  pure  unmixed  equity,  and 
from  its  very  nature  could  not  have  been  intended  for  the  relief 
of  those  who  were  in  a  condition  and  at  liberty  to  elect  whether 
they  would  or  would  not  be  bound,  and  so  far  as  I  have  been  en- 
abled to  learn  its  history,  it  never  has  been  so  applied.  It  has  been 
directed  exclusively  to  the  relief  of  those  who  were  already  bound, 
and  who  could  not  but  choose  to  abide  the  penalty.  I  have  seen  no 
case  in  which  a  stranger,  who  was  in  a  condition  to  make  terms  for 
himself,  and  demand  any  security  he  might  require,  has  been  pro- 
tected by  the  principle. 

In  Sanford  v.  McLean,  3  Paige  122,  Chancellor  Walworth  states 
the  principle  with  great  clearness.  "It  is  only  in  cases  where  the 
person  advancing  money  to  pay  the  debt  of  a  third  party  stands 
in  the  situation  of  a  surety,  or  is  compelled  to  pay  it  to  protect  his 
own  rights,  that  a  court  of  equity  substitutes  him  in  the  place  of 
the  creditor  as  a  matter  of  course  without  any  agreement  to  that 
effect.  In  other  cases,  the  demand  of  a  creditor,  which  is  paid  with 
the  money  of  a  third  person,  and  without  any  agreement  that  the 
security  shall  be  assigned  or  kept  on  foot  for  the  benefit  of  such 
third  person,  is  absolutely  extinguished." 

The  same  doctrine  will  be  found  to  be  maintained  in  numerous 
other  cases  in  the  American  courts.     Hayes  v.  Ward,  4  Johns.  Ch. 


PARTIES    ENTITLED 


535 


R.  130;  Banta  v.  Garmo,  1  Sandf.  Ch.  R.  384;  Wilkes  v.  Harper, 
1  Comst.  586;  Swan  v.  Patterson,  7  Maryland  R.  164.     See  also  . 
Copis  v.  Middleton,   1   Turner  &  Rus.  224 ;  Hodgson  v.  Shaw,  3 
Mylne  &  K.  183;  Williams  v.  Owen,  12  Simons  597;  Bowker  v.. 
Bull,  1  Simons  n.  s.  29.  ^  * 

The  complainant  is  clearly  not  in  a  position  to  claim  the  benefit 
of  the  principle  which  he  invokes  for  his  relief.    He  had  no  interest 
in  the  land  subject  to  the  mortgage  for  the  protection  of  which  it 
was   necessary  that  he   should  pay  the   mortgage   debt.     Tie   was 
under  no  obligation  to  pay  it,  as  surety  or  otherwise,  out  of  his  own 
funds ;  on  the  contrary,  it  was  his  duty,  as  administrator  of  Cotton,  f 
to  pay  the  debt  out  of  that  estate.    He  so  understood  his  duty;  for  • 
mTnelinal  settlement  of  his  accounts  as  administrator,  he  charges 
himself  with  the  entire  proceeds  of  the  sale,  and  claims  credit  for 
the  payment  of  the  mortgage  debt  out  of  the  estate.     If  he  chose  ' 
to  advance  the  mortgage  debt  out  of  his  own  funds  for  the  con- 
venience of  the  purchaser,  he  was  in  a  situation  to  require  a  new 
mortgage,  or  such  other  security  as  he  saw  fit  for  his  own  protec- 
tion.    Having  neglected  to  do  so,  he  has  no  claim  to  protection  in 
equity  by  being  subrogated  to  the  rights  of  the  mortgagee. 

The  fact  that  the  mortgagee  has  not  been  satisfied  of  record  will 
not  alter  the  case.  The  evidence  shows  that  the  mortgage  debt  is 
extinguished.  The  holder  of  the  mortgage  neither  assigned,  nor 
agreed  to  assign  the  security.  Upon  receipt  of  the  money,  he  gave' 
the  administrator  a  receipt  in  full  for  the  debt.  But  if  the  fact 
were  otherwise,  if  the  administrator  held  the  bond  and  mortgage 
in  his  own  hands  undischarged  and  unassigned  after  the  settle- 
ment of  the  estate  of  the  intestate,  this  court  would  not  interfere 
for  his  relief.  It  would  be  eminently  dangerous  to  permit  an  ad- 
ministrator, after  the  settlement  of  an  estate,  to  set  up  an  uncan-  • 
celed  mortgage*  in  his  hands  which  it  was  his  duty  to  have  dis- 
charged, and  which  by  his  final  settlement  he  alleges  was  dis- 
charged, as  a  subsisting  incumbrance  upon  the  title  of  the  pur- 
chaser of  the  mortgaged  premises,  or  those  claiming  under  him. 

Nor  is  the  case  aided  by  the  fact  that  the  defendant  was  apprised 
at  the  time  of  his  purchase  of  the  claim  of  the  complainant.  Notice 
of  an  equitable  lien  will  operate  to  charge  the  estate  in  the  hands 
of  the  purchaser,  but  no  notice  will  serve  to  render  operative  as  an 
incumbrance  a  claim  in  itself  inequitable. 

With  this  view  of  the  principle  by  which  the  case  must  be  con- 
trolled and  decided,  it  is  unnecessary  to  determine  the  disputed 
question  of  fact  in  the  case.  The  facts  have  been  assumed  to  be 
in  accordance  with  the  allegations  of  the  complainant's  bill.  Whether 
they  have  been  established  in  evidence,  is  in  no  wise  material  to 
the  rights  of  the  parties. 

The  bill  must  be  dismissed  with  costs. 


586 


SUBROGATION 


Accord:  Hough  v.  yEtna  Life  Ins.  Co.,  57  111.  318,  11  Am.  Rep.  18;  Binford 
v.  Adams,  104  lnd.  41,  3  N.  E.  753 ;  Smith  v.  Austin,  9  Mich.  465  ;  Cape  Girar- 
deau Bell  Telephone  Co.  v.  Hamil's  Estate,  134  S.  W.  (Mo.)   1103. 

In  Journal  Publishing  Co.  v.  Barber,  165  N.  Car.  478,  81  S.  E.  694,  Walker, 
J.,  says  in  part :  "Plaintiff  was  not  a  volunteer.  It  acted  upon  the  bona  fide 
belief,  and  had  the  right  to  do  so,  that  Moore  either  owned  the  machine  him- 
self or  had  authority  from  his  wife  to  sell  it,  if  she  owned  it.  There  is  no> 
evidence  that  plaintiff  did  not  act  honestly  in  the  transaction.  It  was  attempt- 
ing in  good  faith  to  protect  its  own  interests  in  what  it  believed  to  be  a  right- 
ful sale  of  the  property  to  it.  The  fact  that  it  may  have  been  mistaken  in  this 
belief  does  not  make  it  a  volunteer  or  intermeddler  who,  having  no  interest} 
to  protect  and  without  any  legal  or  moral  obligation,  pays  the  debt  of  another,} 
is  not  entitled  to  subrogation  without  an  agreement  to  this  effect,  or  an  as- 
signment of  the  debt,  and  that  the  payment  by  him  absolutely  extinguishes 
the  debt.  It  always  requires  something  more  than  the  mere  payment  of  a 
debt  in  order  to  entitle  the  person  paying  the  same  to  be  substituted  in  the 
place  of  the  original  creditor.  There  must  be  the  discharge  of  a  legal  obliga- 
tion for  another  who  is  under  a~primary  obligation,  for  no~man -ea«-mak-e- 
another  his  debtor  without  his  consent,  and  only  a  creditor  or  person  under 
liability  can  invoke  the  doctrine,  there  being  no  debt,  there  can  be  no  ground 
for  subrogation.  Furthermore  the  payeji  must  have  acted  on  compulsion  to 
save  himself  from  loss,  and  it  is  only  in  cases  where  the  person  paying  the 
debt  of  another  stands  in  the  relation  of  a  surety,  or  is  compelled  to  pay  in 
order  to  protect  his  own  interests  or  by  virtue  of  legal  process,  that  equity 
substitutes  him  in  the  place  of  the  creditor  without  any  agreement  to  that 
effect ;  in  other  cases  the  debt  is  absolutely  extinguished.    37  Cyc.  375. 

"Volunteers,  in  the  absence  of  some  special  circumstance  upon  which  they 
can  base  their  claims,  can  obtain  the  equal  right  to  be  subrogated  only  by 
virtue  of  an  agreement,  express  or  implied,  or  by  request  by  the  debTor  to 
pay,  which  is  in  effect  an  implied  contract,  or  by  ratification,  or  by  taking  an 
assignment  of  the  debt.  But  payments  made  in  ignorance  of  the  real  state  of 
facts  can  not  be  said  to  be  voluntary,  and  a  person  who  has  paid  a  debt  under 
a  colorable  obligation  to  do  so,  that  he  may  protect  his  own  claim,  or  under 
an  honest  belief  that  he  is  bound,  will  be  subrogated ;  and  a  person  who  mis- 
takenly, but  in  good  faith,  believes  that  he  has  an  interest  in  property,  to 
protect  which,  he  discharges  a  lien,  is  subrogated  to  the  lien  for  his  repayment; 
and  subrogation  is  sometimes  extended  to  cases  of  payment  by  persons  not 
legally  bound  to  pay,  but  who  do  so,  not  as  volunteers,  *but  with  a  well- 
founded  expectation,  justified  by  the  conduct  or  contract  of  the  debtor,  that 
they  will  be  entitled  to  hold  the  securities  for  their  indemnity  which  the 
creditor  had  against  the  debtor;  and  in  one  jurisdiction  it  has  been  held  that 
a  stranger  who  pays  a  debt  without  request  by  the  debtor,  when  his  payment 
is  not  ratified  by  the  debtor,  may  bring  a  suit  in  equity,  praying  relief  in  the 
alternative,  that  if  the  debtor  do  not  ratify  such  payment  the  debt  may  be  en- 
forced in  his  favor  as  its  equitable  assignee,  or,  if  so  ratified,  that  he  be 
decreed  repayment  of  the  amount  paid  for  the  use  of  the  debtor.  'Payment 
under  a  moral  obligation  is  not  voluntary.'   37  Cyc.  376  to  379  and  notes." 


i-j 


PARTIES    ENTITLED  587 

(c)    The  Creditor 

MAURE  v.  HARRISON 
1  Eq.  Cos.,  Abr.  93,  Placitum  5  (1692). 

A  bond  creditor  shall,  in  this  court,  have  the  benefit  of  all  coun- 
ter bonds  or  collateral  security  given  by  the  principal  to  the  surety  ; 
as  if  A  owes  B  money,  and  he  and  C  are  bound  for  it,  and  A  gives 
C  a  mortgage  or  bond  to  indemnify  him,  B  shall  have  the  benefit  of 
it  to  recover  his  debt. 

Accord:  Union  NationsBank  v.  Rich.  106  Mich.  319,  64  N.  W.  339;  Pen- 
dery  v.  Allen,  50  Ohio  StT121,  33  N.  E.  716,  19  L.  R.  A.  367;  Johnson  v.  Mar- 
tin, 83  Wash. "364,  145  Pac.  429. 


TAYLOR  v.  FARMERS'  BANK  OF  KENTUCKY^ 

87  Ky.  398,  9  S.  W.  240  (1888). 


This  is  a  question  of  subrogation.  October  10,  1877,  William 
Timberlake  drew  a  bill  of  exchange  for  seven  thousand  one  hun- 
dred and  forty  dollars  and  three  cents  upon  Henry  C.  Timberlake, 
pajable_to  the  order  of  John  W.  Menzies.  It  was  indorsed  by  the  /' 
latter,  after  having  been  accepted  by  Henry  C.  Timberlake,  and  then 
delivered  to  the  latter  and  negotiated  by  him  for  his  benefit. 

March  18,  1878,  the  Farmers'  Bank  of  Kentucky  sued  the  three 
parties  above  named  upon  the  bill,  and  subsequently  recovered  a 
judgment.  Execution  upon  it  was  returned  nulla  bona,  save  about 
one  thousand  dollars,  made  out  of  the  estate  of  William  Timberlake, 
th<T"Timberlakes  and  Menzies  being  insolvent.  The  latter  was  an 
accommodation  indorser,  and  has  never  paid  anything  upon  the 
judgment.  March  21,  1878,  the  appellee,  Susan  A.  Timberlake,  her 
husband,  Henry  C.  Timberlake,  joining  with  her  as  a  legal  necessity 
to  the  step,  mortgaged  to  John  W.  Menzies  a  tract  of  land  belonging 
to  her. 

The  condition  of  the  mortgage  is  as  follows :  "This  conveyance 
is  made  to  secure,  indemnify  and  save  harmless  the  said  Menzies 
against  any  loss  he  may  sustain  by  reason  of  his  indorsement  of  a 
draft,  dated  October  10,  1877,  drawn  by  William  Timberlake.  on 
the  said  Henry  C.  Timberlake  for  his  accommodation,  at  four 
months,  for  seven  thousand  one  hundred  and  forty  dollars  and  three 
cents,  and  indorsed  by  said  Menzies,  and  negotiated  by  said  Henry 
C.  Timberlake  for  his  own  benefit,  and  upon  which  the  Farmers' 


588  SUBROGATION 

Bank  of  Kentucky  has  brought  suit  in  the  Kenton  Circuit  Court; 
and  if  said  Menzies  is  not  required  to  pay  any  part  of  said  claim,  this 
conveyance  will  stand  for  naught,  otherwise  it  will  remain  in  full 
force.     *     *     * 

"The  said  Menzies  is  not  to  permit  any  loss  to  fall  upon  him  which 
he  can  lawfully  prevent,  as  this  conveyance  is  for  his  benefit,  and 
not  made  for  the  purpose  of  securing  any  part  of  said  claim,  which 
he  may  avoid  by  any  and  all  lawful  efforts." 

December  7,  1882,  the  bank,  by  a  written  transfer,  assignee^  the 
judgment  to  the  appellants,  together  with  "all  the  rights  and  equities 
of  every  kind  or  nature"  connected  with  it. 

Henry  C.  Timberlake  died  insolvent  in  1880;  and  on  December 
12,  1882,  the  appellants  brought  this  action,  asking  to  be  substituted 
in  all  the  rights  of  Menzies  under  the  mortgage  of  indemnity  to  him, 
and  that  the  land  of  Mrs.  Timberlake  be  subjected  to  the  payment 
of  their  judgment.  I 

The  matters  above  recited  are  to  be  taken  as  true,  as  they  are  set 
out  in  the  petition,  and  it  was  dismissed  upon  demurrer. 

It  is  urged  that  there  was  no  consideration  to  support  the  mort- 
gage.   It  was  executed  after  the  bill  of  exchange,  and  indeed  after 
('suit  had  been  brought  upon  it.    If  Menzies  had  paid  anything,  and' 
'  were  seeking  to  enforce  the  mortgage,  suspicion  arises   from  this 
1  i  record  that  if  issue  were  made,  and  proof  taken  upon  a  plea  of  no 
consideration,  it  would  be  in  his  way. 

The  writing,  however,  imports  a  sufficient  consideration.  True, 
this  presumption  ceases  when  the  party  relying  upon  the  writing 
undertakes  to  show  the  consideration  by  his  pleading.  (Steadman 
v.  Guthrie,  etc.,  4  Met.  147.) 

Here,  however,  the  appellants  did  not  do  this ;  but  merely  state 
the  purpose  of  the  mortgage.  The  real  question  in  the  case  is  now 
reached.  Had  the  bank  a  right  to  be  substituted  to  Menzies'  place 
under  the  mortgage?  If  so,  then  the  appellants,  as  its  assignees,  have 
the  same  right. 

The  doctrine  of  subrogation  comes  to  us  from  the  civil  law.   It  is 
not  the  creature  of  contract,  but  of  natural  equity,  although  it  has 
been  said  that  it  may  be  modified  by  contract.    It  is  applied  between 
parties,  where  the  circumstances  require  it,  that  essential  justice  may 
be  afforded ;  but  not  where  it  will  work  injustice  to  others. 
x-   The  rule  is  well  settled  that/where  a  security  is^  given  by  a  prin-i 
cipal  to  bis  surety,  it  operates  eo  instant!  as  a  security  to  the  creditor 
\  forthe  payment  of  his  debt.  ^  This  right  of  the  latter  can  not  be  de- 
\f  career  even  by  the  release  or  conveyance  of  the  surety  or  mortgagee, 
unless  the  liability  be  contingent,  save  to  a  bona  fide  purchaser  with- 
out notice;  and  if  contingent,  the  surety  can  not  defeat  it  after  hisj 
liability  becomes  fixed.   The  reason  of  this  rule  is,  that  the  security j 
given  by  the  principal  debtor  to  his  surety  is  regarded  in  equity  as  | 
a  trust  fund  for  the  payment  of  the  debt.    All  the  property  of  the 


0   M  '     d)     ft  yJ^UrCj ,      q^ 

PARTIES    ENTITLED 

principal  debtor  is  liable  for  his  debt ;  and  it  does  not  lie  in  his 
mouth,  therefore,  to  say  that  it  is  not  in  trust  for  the  creditor  when 
pledged  to  the  surety  as  .indemnity.  The  creditor  may,  through  the 
medium  of  the  surety,  resort  to  the  property  thus  placed  in  trust  for  .-' 
the  payment  of  the  debt,  and  is  invested  by  equity  with  all  the  rights 
of  the  surety. 

In  such  a  case  the  security  is  for  the  debt,  as  well  as  the  ultimate 
protection  of  the  surety.   It  is  at  once  clothed  with  a  trust  character ; 
and  the  creditor  immediately  requires  a  right  and  interest  in  it  that 
can  not  be  defeated  by  the  act  of  the  surety.    He  becomes  a  trustee 
for  the  creditor.    So,  too,  upon  like  principles  of  justice  or  natural  ^ 
equity,  where  a  principal  indemnifies  one  of   several  sureties,   he  " 
becomes  a  trustee  for  the  others,  and  each  is  entitled  to  share  the.  Xij   * 
indemnity.   The  estate  of  the  principal  is  liable  for  the  debt,  and  his    . 
obligations  to  them  are  equal. 

A  different  state  of  case  is  presented,  however,  where  the  contract  ; 
of  indemnity  is  by  a  stranger  to  the  debt,  and  for  the  personal  bene- 
fit of  thejsurety  merely,  in  opposition  to  the  idea  of  a  trust  for  the 
payment  of  the  debt,  til  such  a  case  the  indemnity  is  not  out  of  the 
estate  of  the  principal. 

It  was  said  in  the  case  of  Osborne,  etc.,  v.  Noble,  46  Miss.  449: 
"We  think  the  principle  has  been  stated  and  enforced,  that  if  the 
security  be  purely  personal,  as  to  indemnify  and  save  harmless  the^ 
surety,  and  not  for  the  better  protection  of  the  debt,  or  intended  asj 
a  fund  for  its  payment,  a  trust  does  not  attach  to  it  for  the  cred- 
itor." 

Here  Mrs.  Timberlake  was  in  no  way  liable  for  the  debt.  The 
fact  that  she  was  the  wife  of  Henry  C.  Timberlake  makes  no  dif- 
\  ference.  The  indemnity  was  not  out  of  his  estate.  The  wife  was 
under  no  obligation  to  pay  the  debt ;  and  must  be  regarded,  as  in- 
deed she  was,  as  a  stranger  to  it.  It  was  no  fraud  upon  the  creditor""/ 
to  merely  indemnify  the  surety.  As  the  property  belonged  to  her,  if 
the  mortgage  created  no  lien  to  secure  the  payment  of  the  debt, 
then  no  trust  was  created  in  favor  of  the  creditor,  since  it  is  cer- 
tain that  the  bill  of  exchange  was  not  accepted  upon  the  faith  of  the 
indemnity.  It  was  not  furnished  to  the  surety  until  long  after  the 
creation  of  the  debt,  and  indeed  not  until  suit  was  brought  upon  it._ 
(Hex-contract  tnuot  beuiegarded  as  one  merely  to  save  the  surety 
harmless ;  as  undertaking  merely  to  indemnify  him  against  the  pay- 
ment of  the  debt ;  and  pledging  the  mortgage  property  to  him  for 
whatever  he  might  be  compelled  to  pay,  and  not  as  security  for  the 
payment  of  the  debt.  It  is  true  the  mortgage  recites :  "The  said 
Menzies  is  not  to  permit  any  loss  to  fall  upon  him  which  he  can 
lawfully  prevent,  as  this  conveyance  is  for  his  benefit,  and  not  made 
for  the  purpose  of  securing  any  part  of  said  claim,  which  he  may 
avoid  by  any  and  all  lawful  efforts ;"  but  when  the  entire  instru- 


590  SUBROGATION 

merit  is  considered,  it  is  evident  the  purpose  was  merely  to  indem- 
nify Menzies. 

This  being  so,  no  right  of  subrogation  exists  in  behalf  of  the  ap- 
pellants.   Their  claim  is  not  supported  by  that  equity  which  would 
attach  to  it  if  the  debt  had  been  accepted  upon  the  faith  of  an  in-/ 
demnity  created  by  the  mortgage  for  its  payment. 

These  views  are  supported  and  ably  enforced  by  the  opinions  in 
the  cases  of  Leggett  v.  McClelland,  30^QhioStf624,  and  Macklin, 
etc.,  v.  Northern  Bank  of  Kentucky,  83  KyT3Tztrran,d  the  judgment 
below  is  affirmed. 


^ 


HAMPTON,  ADMINISTRATOR,  ET  AL.  v.  PHIPPS^ 
108  U.  S.  260,  27  L.  ed.  719  (1883). 

Bill  in  equity  by  a  creditor  to  obtain  the  benefit  of  securities  held 
by  sureties  of  the  principal  debtor. 

The  appellee,  who  was  complainant  below,  was  the  holder,  and 
filed  his  bill  in  equity,  on  behalf  of  himself  and  the  other  holders  of 
bonds,  executed  and  delivered  by  Theodore  D.  Wagner  and  William 
L.  Trenholm,  to  the  amount  of  $710,000,  and  paid  to  creditors  in 
settlement  of  the  liabilities  of  two  insolvent  firms,  in  which  they 
were  two  of  the  copartners.  These  bonds  were  dated  January  1, 
1868.  The  payment  of  the  principal  and  interest  of  each  of  these 
bonds  was  guaranteed,  by  writing  indorsed  thereon,  by  George  A. 
Trenholm  and  James  T.  Welsman,  who  were  sureties  merely.  These 
sureties  entered  into  a  written  agreement  each  with  the  other,  dated 
May  3,  1869,  in  which  it  was  recited  that,  in  becoming  parties  to 


said  guaranty,  they  had  agreed  between  themselves  that  the  said 
George  A.  Trenholm  should  be  liable  for  the  sum  of  $400,000,  and 
the  said  Jas.  T.  Welsman  for  the  sum  of  $310,000,  of  the  aggregate 
amount  of  the  bonds,  and  no  more,  and  that  each  would  be  respec- 
tively liable  to  the  other  for  the  full  discharge  of  the  said  sum  and 
proportion  by  them  respectively  undertaken,  and  that  each  would 
save  and  keep  harmless  and  indemnify  the  other  from  all  claim,  by 
reason  of  the  said  guaranty,  beyond  the  amount  or  proportion  re- 
spectively assumed,  as  stated ;  and  it  was  thereby  further  agreed 
that,  at  any  time  when  either  of  them  should  so  require,  each  should, 
by  mortgage  of  real  estate,  secure  to  the  other  more  perfect  indem- 
nity, because  of  the  said  guaranty.  Thereupon,  and  on  the  sam€N 
date,  each  executed  to  the  other  a  mortgage  upon  real  estate  of 
which  they  were  respectively  the  owner,  the  condition  .of  which  was  j 
that  the  mortgagor  should  perform  on  his  part  the  said  agreement 
of  that  date./  The  guarantors,  as  well  as  the  principal  obligors,  had 
become  insolvent  before  the  bill  w&s  filed. 

It  also  appeared  that,  of  the  sum  of  $573,300  due  on  account  of 


PARTIES    ENTITLED 


591 


'X? 


outstanding  bonds,  George  A.  Trenholm,  one  of  the  guarantors, 
had  paid  $108,454,  leaving  still  due  from  his  estate  to  make  good 
the  proportion  assumed  by  him,  $214,532;  and  that  the  proportion 
for  which  the  estate  of  James  T.  Welsman,  the  other  guarantor, 
was  liable,  was  $250,314,  of  which  nothing  had  been  paid.  The  ap- 
pelle^s_claimed.-tha-t  the  mortgages  interchanged  between  the"  guar- 
antors inured  to  their  benefit  as  securities  for  the  payment  of  the 
prmcjpah-debtr._and  prayed  for  a  foreclosure  and  sale  for  that  pur- 
jx)se__ 

This  was  resisted  by  the  appellants,  one  of  whom,  Hampton's  ad- 
ministrator, as  a  judgment  creditor  of  George  A.  Trenholm  and 
James  T.  Welsman,  claimed  a  lien  on  the  mortgaged  premises ;  the 
others,  executrixes  of  James  Welsman,  deceased,  being  subsequent 
mortgagees  of  the  same  property. 

A  decree  passed  in  favor  of  the  complainants,  according  to  the 
prayer  of  the  bill,  from  which  appeal  was  taken. 

Mr.  Justice  Matthews  delivered  the  opinion  of  the  court.  After 
reciting  the  facts  in  the  above  language,  he  continued : 

The  ground  on  which  the  court  below  proceeded  seems  to  have 
been  that  the  mortgages  given  by  the  cosureties,  each  to  the  other,  J 
were  in  equity   securities   for  the  payment  of   the   principal  debt, 
which  inured  to  the  benefit  of  the  creditors  upon  the  principle  of 
subrogation. 

The  application  of  the  principle  of  subrogation  in  favor  of  cred- 
itors and  of  sureties  has  undoubtedly  been  frequent  in  the  courts  of 


V 


e. 


>-C*s+* 


£/T_A-' 


equity  in  England  and  the  United  States,  and  is  an  ancient  and  fa 
miliar  head  of  their  jurisdiction. 

It  was  distinctly  stated,  as  to  creditors,  in  the  early  case  of  Maure 
v.  Harrison,  1  Eq.  Ca.  Abr.  93,  where  the  whole  report  is  as  follows : 

"A  bond  creditor  shall,  in  this  court,  have  the  benefit  of  all  coun- 
ter-bonds or  collateral  security  given  by  the  principal  to  the  surety ; 
as  if  A  owes  B  money,  and  he  and  C  are  bound  for  it,  A  gives  C  a 
mortgage  or  bond  to  indemnify  him,  B  shall  have  the  benefit  of  it 
to  recover  his  debt." 

And  the  converse  of  the  rule  was  stated  by  Sir  Wm.  Grant  in 
Wright  v.  Morley,  11  Vesey  12,  where  he  said: 

"I  conceive  that  as  the|  creditor  is  entitled  to  the  benefit  of  all  the"} 
securities  the  principal  debtor  has  given  to  his  surety,  the  surety  hasf 
full  as  good  an  equity  to  the  benefit  of  all  the  securities  the  prin- 
cipal gives  to  the  creditor." 

And  it  applies  equally  between  sureties,  so  that  securities  placed 
by  the  principal  in  the  hands  of  one,  to  operate  as  an  indemnity  by 
payment  of  the  debt,  shall  inure  to  the  benefit  of  all. 

Many  sufficient  maxims  of  the  law  conspire  to  justify  the  rule. 
To  avoid  circuity  and  multiplicity  of  actions ;  to  prevent  the  exer- 
cise .of  one's  right  from  interfering  with  the  rights  of  others;  to 
treat  that  as  done  which  ought  to  be  done;  to  require  that  the  bur- 


"i 


y> 


592 


SUBROGATION 


den  shall  be  borne  by  him  for  whose  advantage  it  has  been  assumed ; 
and  to  secure  equality  among  those  equally  obliged  and  benefited, 
are  perhaps  not  all  the  familiar  adages  which  may  legitimately  be 
assigned  in  support  of  it.  It  is,  in  fact,  a  natural  and  necessary 
equity  which  flows  from  the  relation  of  the  parties,  and  though  not 
the  result  of  contract,  is  nevertheless  the  execution  of  their  inten- 
tions 


y*> 


For,  when  a  debtor,  who  has  given  personal  guaranties  for" 
the  performance  of  his  obligation,  has  further  secured  it  by  a  pledge 
in  the  fiands  of  his  creditor,  or  an  indemnity  in  those  of  his  surety, 
it  is  conformable  to  the  presumed  intent  of  all  the  parties  to  the 
arrangement  that  the  fund  so  appropriated  shall  be  administered  as 
a  trust  for  all  the  purposes  which  a  payment  of  the  debt  will  ac- 
complish ;  and  a  court  of  equity  accordingly  will  give  to  it  this  ef- 
fect. All  this,  it  is  to  be  observed,  as  the  rule  verbally  requires,  pre- 
supposes that  the  fund  specifically  pledged  and  sought  to  be  pri- 
marily applied  is  the_pxop€r-ty^Qf  the  debjxtr,  primarily  liable  for  the 
payment  if  tin  debt  :  and  ii  is  because  it  is  so  that  equity  impresses 
upon  it  the  trust,  which  requires  that  it  shall  be  appropriated  to  the 
v  satisfaction  of  the  creditor,  the  exoneration  of  the  surety,  and  the 
■ge  of  the  debtor.  The  implication  is  that  a  pledge  made  ex- 
pressly tc  one  is  in  trust  for  another,  because  the  relation  between 
the  parties  is  such  that  the  construction  of  the  transaction  best 
effectuates  the  express  purpose  for  which  it  was  made. 

It  follows  that  the  present  case  can  not  be  brought  within  either 
.  the  terms  or  the  reason  of  the  rule ;  for,  as  the  property,  in  respect 
to  which  the  creditors  assert  a  lien,  was  not  the  property  of  the 
.{  principal  debtor,  and  has  never  been  expressly  pledged  to  payment 
of  the  debt,  as  no  equitable  construction  can  convert  it  by  implica- 
tion into  a  security  for  the  creditor. 

It  is  urged  that  the  logic  of  the  rule  would  extend  it  so  as  to  cover 
the  case  of  all  securities  held  by  sureties  for  purposes  of  indemnity 

But  this  sugges- 


y 


of  whatsoever  character  and  by  whomsoever  given 
tion  is  founded  on  a  misconception  of  the  scope  of  the  rule  and  the 
rational  grounds  on  which  it  is  established.  Of  course,  if  an  express 
trust  is  created,  no  matter  by  whom,  nor  of  what,  for  the  payment 
cf  the  debt,  equity  will  enforce  it,  according  to  its  terms,  for  the 
benefit  of  the  creditor,  as  a  cestui  que  trust ;  but  the  question  con- 
cerns the  creation  of  a  trust,  by  operation  of  law,  in  favor  of  a 
creditor,  in  a  case  where  there  was  no  duty  owing  to  him,  and  no 
indention  of  bounty.  \A  stranger  might  well  choose  to  bestow  upon 
a  surety  a  benefit  and  a  preference,  from  consideratioiisTpurely  per- 
sonal,  in  order  to  make  good  to  him  exclusively  any  loss  to  which 
he  might  be  subjected  in  consequence  of  his  suretyship  foi  another. 
In  such  a  case,  neither  cosurety  nor  creditor  could,  upon  any  ground 
of  privity  in  interest,  claim  to  share  in  the  benefit  of  such  a  benevo- 
lence. 

There  may  be,  indeed,  cases  in  which  it  would  not  be  inequitable 


PARTIES    ENTITLED  593 

for  the  debtor  himself  to  make  specific  pledges  of  his  own  property, 
limited  to  the  personal  indemnity  of  a  single  surety,  without  benefit 
of  participation  or  subrogation ;  as,  when  the  liability  of  the  surety 
was  contingent  upon  conditions  not  common  in  his  cosureties,  and 
which  may  never  become  absolute.  Hopewell  v.  Cumberland  Bank, 
10  Leigh  206. 

We  are  referred  by  counsel  to  the  case  of  Curtis  v.  Tyler,  9  Paige 
432,  as*  an  instance  in  which  the  rule  has  been  extended,  to  securi- 
ties in  the  hands  of  a  surety  not  derived  from  the  principal  debtor. 
But  the  fact  in  that  case  is  otherwise.  The  question  was  as  to  the 
right  of  an  assignee  of  a  mortgage  to  the  benefit  of  the  guaranty  of 
one'Allen  to  make  good  any  deficiency  in  the  mortgaged  property  to 
pay  the  mortgage  debt.  This  bond  has  been  given  to  one  Murray,  a 
prior  holder  of  the  mortgage,  who  had  assigned  it  to  the  complain- 
ant.  The  court  say,  in  the  opinion,  p.  436 : 

"In  the  case  under  consideration,  Murray  had  assigned  the  bond 
and  mortgage  given  to  him,  and  had  guaranteed  the  payment  thereof 
to  the  assignee.  He,  therefore,  stood  in  the  situation  of  a  surety  -' 
for  the  mortgagor,  when  the  latter  procured  the  bond  of  Allen  as  a 
collateral  security,  or  as  a  guaranty  of  the  payment  of  his  original 
bond  and  mortgage.  The  present  holders  are,  therefore,  in  equity 
entitled  to  the  benefit  of  this  collateral  bond,  in  the  same  manner 
and  to  the  same  extent  as  if  it  had  been  given  to  Murray  before  he 
assigned  his  bond  and  mortgage,  and  had  been  expressly  assigned  by 
him  to  Beers,  and  by  Beers  to  the  complainants." 

It  thus  distinctly  appears  that  the  bond  of  Allen,  which  was  the 
collateral  security  in  controversy,  was  procured  by  and  derived 
from  the  original  mortgagor,  the  principal  debtor.  We  have  been 
referred  to  no  case  which  forms  an  exception  to  the  rule  as  we  have 
stated  it. 

But  the  claim  of  the  complainants  fails  for  another  reason.    Tlie  , 
right  of  subrogation,  on  which  they  rest  it,  is  merely  a  right  to  be 
substituted  in  place  of  each  of  the  cosureties  in  respect  to  the  other, 
in  order  to  enforce  the  mortgages  given  by  them  respectively  accord^ 
ing  to  their  terms.    But  the  conditions  of  those  mortgages  have  not 
i  been  broken,  and  the  very   fact,  which  is  supposed  to  confer  the 
right  upon  the  creditor  to  interpose—  the  insolvency  of  the  sureties 
— has  rendered  it  impossible  for  either  to  fasten  upon  the  other  a    ' 
breach  of  the  condition  of  his  mortgage.    As  neither  can  pay  his 
own  proportion  of  the  liability  they  agreed  to  divide,  neither  can 
claim  indemnity  against  the  other   for  an  overpayment.    It  is  en- 
tirely clear,  therefore,  that  neither  of  the  sureties  could  be,  under 
the  circumstances  as  they  appear,  entitled,  as  mortgagee,  to  fore- 
close the  mortgage  against  the  other.   The  condition  of  each  mort- 
gage was,  that  the  mortgagor  would  perform  his  part  of  the  agree- 
ment and  indemnify  the  mortgagee  against  the  consequences  of  a  - 
38— De  Witt. 


Hf    x>~*^<. 


594 


SUBROGATION 


failure  to  do  so.  Unless  one  of  them  had  been  compelled  to  pay, 
and  had  in  fact  palaVan  excess  beyond  his  agreed  share  of  the  debt, 
there  could  have  been  no  breach  of  the  conditions  of  the  mortgage, 
\  and"  consequently  no  right  to  a  foreclosure  and  "sale  of  the  mortgaged 
premises.  And  the  amount  which  the  mortgagor  would  be  required 
to  pay,  as  a  condition  of  redeeming  the  mortgaged  premises,  in  case 
of  foreclosure,  would  be,  not  the  amount  which  the  mortgagee,  ai 
between  himself  and  the  common  creditor,  was  bound  to  pay  on  ac- 
count of  the  debt,  but  the  amount  which,  as  between  himself  and 
his  cosurety,  the  mortgagor,  he  had  paid  beyond  the  proportion 
which,  by  the  terms  of  the  agreement  between  them,  was  the  limit 
of  his  liability.  The  mortgages  were  not  created  for  the  security  of 
the  principal  debt,  but  as  security  for  a  debt  possibly  to  arise  from 
one  surety  to  the  other.  As  to  which  of  them  has.  there  beenlisyet 
any  default?  Plainly  none  as  to  either.  And  yet  the  complainants  I 
assert  the  right  to  foreclose  them  both — -a  claim  that  is  self-contra-  J 
dictory,  for,  by  the  very  nature  of  the  arrangement,  it  is  impossible 
that  there  should  be  a  default  as  to  both.  The  fact  that  one  mortal 
gagor  had  failed  to  perform  his  part  of  the  agreement  could  only 
be  on  the  supposition  that  the  other  had  not  only  fully  performed 
it  on  his  part,  but  had  paid  that  excess  against  which  his  cosurety 
had  agreed  to  indemnify  him.  There  is,  therefore,  no  right  to  the 
subrogation  insisted  on,  because  there  is  nothing  to  which  it  can 

apply-  , 

yo.  It  results,  therefore,  that  the  [complainants  were  not  entitled  to 
participate  in  the  benefit  of  the  mortgages  in  question,  nortcrshare 
in  the  proceeds  of  the  sale  of  the  mortgaged  premises ;  but  that  the 
same  should  have  been  applied  to  the  payment  of  the  other  judg- 
ment and  mortgage  liens  upon  the  premises,  in  the  order  of  their 
priority.  The  decree  of  May  29,  1879,  therefore,  being  the  one  from 
which  the  appeal  was  taken,  is  reversed,  and  the  cause  remanded 
with  directions  to  take  such  further  proceedings  therein,  not  incon= 
sistent  with  this  opinion,  as  justice  and  equity  require. 
Decree  reversed. 


SECTION  3.   WHEN  THE  RIGHT  ARISES 

WILLIAM  WILCOX  ET  AL.  v.  THE  PRESIDENT,  DIREC- 
TORS AND  COMPANY  OF  THE  FAIR- 
HAVEN  BANK  ET  AL. 

89  Mass.  270  (1863). 

Bill  in  equity  by  sureties  upon  notes  given  by  Reuben  Fish  to  the 
Fairhaven  Bank,  seeking  to  compel  the  latter  to  apply  the  avails  of 
certain  securities  held  by  them  from  Fish  pro  rata  upon  the  notes 
signed  by  the  plaintiffs.    The  case  was  reserved  for  the  determina- 


WHEN   THE   RIGHT   ARISES  595 

tion  of  the  whole  court  by  Dewey,  J.,  upon  facts  which  sufficiently 
appear  in  the  opinion. 

Merrick,  J. :   From  the  undisputed  allegations  in  the  bill  and  an- 
swer it  appears  that  on  the  first  day  of  December,  1857,  /Reuben  1 
Fish  conveyed  to  the  defendants  certain  personal  property  to  be  held( 
by  them"  as  security  for  the  payment  of  the  several  promissory  notes' 
and  drafts  for  which  he  was  then,  or  within  two  years  thereafter)    ______ 

mighThecome,  liable  to  thern^  either  as  promisor,  acceptor,  drawer  or 
indorser.  That  this  was  the  object  and  purpose  of  the  conveyance 
is  expressly  stated  and  declared  in  the  bond  which  was  at  the  same 
time  given  by  them  and  accepted  by  him,  by  the  terms  of  which  they 
obligated  themselves  to  reconvey  the  property  to  him  whenever  he 
should  pay  such  notes  and  drafts,  or  cause  them  to  be  fully  paid  and 
discharged.  From  all  the  property  conveyed  to  them  the  defendants 
have  since  realized  in  money  the  sum  of  $2,936.12;  and  nothing 
further  is  expected  or  can  be  obtained  from  it.  They  claim  the  right 
to  appropriate  the  whole  of  this  sum  to  their  own  use,  by  applying 
$1,220:79  in  payment  of  sundry  notes  made  by  said  Fish  and  dis- 
counted by  them  between  December  1,  1857,  and  November  7,  1859, 
for  the  payment  of  which  they  had  no  security  other  than  the  prop-  ' 
erty  mortgaged  to  them  as  before  mentioned,  and  by  applying  the 
balance,  to  wit,  $1,715.33,  toward  the  payment  of  sundry  other 
notes  of  said  Fish  due  to  them,  part  of  which  were  indorsed  by 
Holmes  &  Co.,  and  the  residue  of  them  by  James  K.  Turner.  It  is  7 
conceded  that  when  these  notes  become  due  the  said  Fish,  Holmes, 
&  Co.  and  Turner  were,  and  that  they  still  are,  insolvent. 

It  is  claimed  by  the  plaintiffs,  on  the  contrary,  that  the  said  con- 
veyance of  the  said  property  to  the  defendants  created  a  trust  in 
favor  of  all  the  sureties  and  indorsers  upon  the  several  notes  of  /f 
said  Fish  discounted  and  owned  by  them;  and  that  these  sureties 
and  indorsers,  being  equitable  cestuis  que  trust,  are  entitled  to  have  ft 
the  proceeds  of  said  property  applied  to  their  relief  pro  rata.    And 
in  support  of  this  claim  they  cite  and  rely  upon  the  decisions  of  this 
court  in  the  cases  of  Eastman  v.  Foster,  8  Met.  19,  and  Rice  v.  j/t^s 
Dewey,  13  Gray  47.  The  broad  principle  of  equity  affirmed  in  those 
cases,  and  upon  which  they  were  determined,  is,  that  a  mortgage 
made  by  a  debtor  to  his  surety,  to  secure  the  payment  of  certain 
debts  for  which  the  latter  is  liable,  and  to  indemnify  him  there-    ' 
from,  is  not  to  be  regarded  simply  as  an  indemnity  to  him,  but  that    ( 
the  estate  of  the  mortgagor  is  to  be  treated  as  a  security  for  the  -f 
debt,  of  which  the  creditor  may  avail  himself ;  or,  if  there  be  sev- 
eral debts,  of  which  the  several  creditors  may  avail  themselves  in 
proportion  to  the  amount  of  their  respective  claims.    These  cases 
thus  show  how  property  mortgaged  to  a  surety  may  be  reached  and 
appropriated  by  the  creditor  or  creditors  to  the  payment   of   the 
debts  severally  due  to  him  or  them ;  but  they  do  not  show,  nor  was 
it  therein  determined,  that  a  creditor  holds  the  proceeds  of  property, 


an 


596  SUBROGATION 

mortgaged  to  him  to  secure  the  payment  of  several  notes  due  to  him, 
as  trustee  for  the  several  sureties  thereon  in  proportion  to  the 
amount  of  their  respective  liabilities,  unless  these  liabilities  have 
been  discharged  by  the  payment  of  all  the  debts  for  which  they  were 
thus  severally  bound.  These  decisions  are  therefore  manifestly  not 
strictly  applicable  to  the  facts  of  the  present  case.    It  is,  however, 

>  undoubtedly  an  established  rule  of  equity  thatfra  surety  who  has 
paid  the  debt  of  his  principal,  either  voluntarily  or  by  compiilsiojr.ls" 
\  entitled  for  his  indemnity  to  any  property  pledged  or  collateral  se- 
curity given  therefor  by  the  principal  to  the  creditor.  But  as  this 
rule  is  founded  on  the  principles  of  reason  and  justice,  and  not  upon 
any  contract  or  stipulation  to  that  effect  between  the  parties,  it  fol- 
lows as  a  necessary  consequence  that  a  surety  is  not  to  be  substituted 
in  the  place  of  the  creditor,  unless  from  the  circumstances  of  the 
case  it  is  shown  that  it  is  just  and  reasonable  that  he  should  be. 
Hence  it  is  obvious  thatAinorder  to  become,  entitled  to  such  substi- 
tution,  he  must  first  pay  the  whole  of  the  debt  or  debts  tor  which 
the  property  is  mortgaged  or  the  collateral  security  is  given  to  the 
creditor :  .forJt_ would  be  manifestly  unjust,  and  a  plain  violation  of 

\his  rights^To^compel  him  to  relinquish  any  portion  of  the  property 
'  \before  the  obligation  for  the  performance  of  which  it  was  conveyed 
to  him  as  security  had  been  fully  kept  and  complied,  wjth.j  Richard- 
son v.  Washington  Bank,  3  Met.  536.  Copis  v.  Middleton,  1  Turn. 
&  Russ.  224;  Hodgson  v.  Shaw,  3  Myl.  &  K.  183.  Such  previous 
payment  by  the  surety  is  alike  essential  where  there  is  only  one  debt 
and  one  surety,  .and  where  there  are  many  debts  all  of  which  are 
equally  protected  and  secured  by  the  property  mortgaged,  and  many 
several  sureties  of  the  several  debts ;  for  the  chief  and  primary  ob- 
ject of  a  pledge  or  mortgage  to  a  creditor  is  his  benefit,  protection 
and  advantage  in  reference  to  each  and  all  of  the  several  debts 
which  it  was  made  or  given  to  secure.  And  until  this  object  is  fully 
accomplished,  no  surety  can  lawfully  or  justly  interfere  to  disturb 
him  in  the  possession  of  the  property  pledged,  or  hinder  him  from 
appropriating  the  proceeds  of  it  toward  payment  of  any  such  debt 
which  he  can  not  otherwise  collect  or  render  available.  And  if  there 
be  one  or  more  debts  thus  secured  for  which  the  debtor  alone  is 
responsible,  and  the  amount  of  which  can  not  be  obtained  from 
him  on  account  of  his  insolvency  or  pecuniary  inability,  such  pro- 
ceeds may  be  applied,  as  far  as  is  necessary  for  that  purpose,  to  the 
payment  and  discharge  of  such  debts,  and  to  that  extent  the  sureties 
upon  notes  constituting  other  debts  can  have  no  interest  in  or  right 
to  the  mortgaged  property.  But  the  several  sureties,  or  any  one  of 
them,  may,  if  they  choose  to  do  so,  pay  all  the  debts  secured  by  the 
mortgage,  and  then  be,  or  they  will  be  entitled  to  be,  substituted  and 
stand  in  the  place  of  the  creditor.  (If  the  payment  be  made  by  one_ 
f  them  only,  he  will  hold  the  propertyTsubject  to  the  rights  ot  the 
r  ,thers  to  come  in  and  pay  the  amount  of  their  respective  liabilities, 

P. 


WHEN    THE    RIGHT    ARISES  597 

for  his  ownjndemnity  ;  if  it  be  made  by  all  of  them,  the  payment 
wuT  operate  as  a  redemption  of  the  property  for  their  common 
benefit,  arrefThe  proceeds  of  it  will  be  held  to  be  distributed  among 
them  in  proportion  to  the  amount  of  their  respective  liabilities*  But 
until  the  whole  of  the  debts  due  to  the  creditor  and  secured  by  the 
mortgage  are  paid  or  offered  to  be  paid  to  him  by  all  or  by  some 
one  of  the  sureties,  he  has  an  undoubted  right  to  the  possession  and 
control  of  the  mortgaged  property,  and  no  proceedings  can  be  had 
against  him  in  reference  to  its  disposal  or  appropriation. 

In  the  application  of  these  principles  to  the  facts  disclosed  in  the 
present  case  it  is  a  necessary  consequence  that  this  bill  can  not  be 
maintained.  The  plaintiffs  have  not  paid,  nor  have  they  in  their 
bill  offered  to  pay,  the  whole  or  any  part  of  the  debts  secured  by 
the  mortgage.  They  do  not,  therefore,  show  that  they  have  anyj 
right  of  substitution,  or  that  they  are  entitled  to  any  relief.  But  ther^ 
result  is  the  same  upon  another  distinct  ground.  The  defendants 
have  a  right  to  appropriate  the  whole  proceeds  of  the  mortgaged 
property  to  the  payment  of  the  notes  of  Fish  upon  which  he  alone 
was  liable,  and  of  those'  other  notes  made  by  him  upon  which 
Holmes  &  Co.  and  Turner  were  respectively  sureties,  because  by 
reason  of  the  insolvency  of  all  these  parties  nothing  can  be  col- 
lected of  them,  and  otherwise  these  notes  would  remain  wholly 
unpaid.  There  is,  therefore,  nothing  left  for  the  sureties  to  redeem, 
or  in  respect  to  which  a  substitution  in  the  place  of  the  creditor 
would  avail  them  anything.   The  bill  must  accordingly  be  dismissed. 


T.  D.  MAGEE  ET  AL.  v.  JOHN  LEGGETT,  ADAIR.,  ETC. 
48  Miss.  139  (1873). 

The  estate  of  Stewart,  deceased,  fecovered  a  judgment  of  the 
circuit  court  against  the  estate  of  Joshua  R.  White,  deceased,  and 
the  estate  of  J.   B.   Hathorn,  deceased,   founded  on  a  promissory  ^    - 
note  executed  by  said  Hathorn  and  White  in  their  lifetime,  Hathorn 
having  signed  the  note  as  surety  for  White.  /SXjl*- 

McNair,  administrator  of  Stewart,  transferred  an  interest, 
amounting  to  $160,  in  this  judgment,  to  Wilkinson,  who  transferred 
this  interest  to  Airs,  M.  C.  Magee,  the  present  holder  of  this  in- 
terest, leaving  $406.20  of  the  judgment  remaining  due  to  McNair, 
administrator,  besides  interest  thereon  at  ten  per  cent,  per  annum, 
from  September,  1857,  the  date  of  the  judgment. 

On  the  26th  of  September,  1866,  the  administrator  of  Hathorn, 
surety,  paid  to  McNair  $400,  as  a  compromise  and  to  procure  a  re- 
lease of  the  estate  of  Hathorn. 

On  the  6th   day   of   October,    1870,   Leggett,   administrator    de 


598 


V/wt    cU-a/oiX»-4  "~Uu—    a*-t)  M. 


SUBROGATION 


n 


wf 


MA 


r 


bonis  non  of  the  estate  of  Hathorn,  filed  his  bill  in  the  chancery 
court  against  the  heirs-at-law  of  said  White,  deceased,  demanding 
a  decree  against  them  for  the  amount  so  paid  as  a  compromise  to 
procure  a  release. 

The  adult  heirs,  defendants,  demurred  to  the  bill,  which  de- 
murrer was  overruled. 

The  complainant  then  filed  an  amended  bill,  being  an  exact  copy 
of  the  original  bill,  except  it  contained  a  new  allegation  in  the 
words  following,  to  wit :  "Your  orator  further  represents  and 
shows  that  the  debt  of  your  orator  and  that  due  Mary  C.  Magee 
are  the  only  debts  existing  against  the  estate  of  the  said  White." 

The  adult  defendants,  heirs-at-law,  also  demurred  to  this  amended 
bill,  which  demurrer  was  overruled ;  from  the  decree  overruling 
their  demurrer  they  appealed. 

Simball,  J. :  On  the  26th  of  September,  1866,  A.  S.  Harper,  ad- 
ministrator of  Hathorn,  deceased,  compromised  with  McNair,  ad- 
ministrator of  Stewart,  deceased,  the  liability  of  his  intestate,  as 
surety  on  a  note  merged  into  a  judgment,  by  paying  $400,  part  of 
the  debt,  in  consideration  of  which  his  intestate's  estate  was  released 
and  discharged  from  the  debt.  The  bill  seeks  subrogation,  pro 
tanto,  to  the  rights  of  the  creditor,  to  whom  the  payment  was  made. 

The  first  question  to  be  disposed  of  is,  wV|pn  Hn^  ttip  ^tatntp  n£_ 
limitations  begin  to  run? — that  being  set  up  as  one  of  the  special 
causes  of  demurrer. 

If  the  complainant  should  be  entitled  to  substitution  at  all  to  the 
judgment  and  its  privileges,  must  suit  be  brought  within  the  time 
limited  for  the  assumpsit  at  law  on  the  implied  promise  of  indem- 
nity ?_ 

It  is  too  well  settled  to  admit  of  controversy,  that  [a£_laiiL_ihe 

cause  of  action  in  favor  of  the  surety  accrues  when  he  pays  the 

money,  and  Irom  that  time  the  statute  of  limitations  begins  to  run. 

'  Scott  v.  Nichols,  27  Miss!  94 ;  Marshall  v.  Hudson,  38  ib.  57 :  Dixon 

v.  Miller,  11  S.  &  M.  594;  Mathews  v.  Southerner,  39  Miss.  174. 

Conceding  the  surety  may  go  into  a  court  of  chancery  to  be 
refunded  what  he  has  paid  on  account  of  his  principal,  the  remedy 
is  governed  as  to  time,  as  in  the  suit  at  law.  But  if  more  be  asked 
than  the  ordinary  moneyed  decree,  as  in  this  case,  that  the  com- 
plainant shall  have  the  benefit  and  privileges  of  the  judgment, 
other  considerations  present  themselves  as  to  the  propriety  of  that 
relief. 

It  was  said  in  4  Rand  444,  and  repeated  in  Growing  v.  Bland's 
Admr.  and  Heirs,  2  How.  815 :  '^TJie-^urety  is  entitled  to  every 
remedy  which  the  creditor  has  against  the  principal  debtor ;  lo_-£n*- 
force  every  security;  to  stand  completely  in  the  place  of  the  cred- 
itor." In  Conway  v.  Strong,  24  Miss.  666;  Bowen  et  ux.  v.  Hos- 
kins,  45  ib.  186 ;  Osborn  v.  Noble,  46  ib.  453,  the  principle  is  de- 
clared that  a  secondary  party,  who  has  been  obliged  to  discharge 


WHEN    THE    RIGHT    ARISES  599 

the  debt,  has  a  right  in  equity  to  occupy  the  place  of  the  creditor, 
and  be  subrogated  to  his  rights  against  the  party  primarily  liable, 
as  to  any  lien  or  security  which  the  creditor  may  have. 

But  it  appears  from  the  allegations  of  the  bill,  that  the  complain- 
ant's intestate  paid  only  $400,  part  of  the  judgment ;  that  the  cred- 
itor assigned  $160,  of  its  amount,  which  by  mesne  assignment  now 
belongs  to  Mrs.  Magee.  It  thus  appears  tW/part-  nf  the  judgment 
still  belongs  to  the  original  creditor,  and  part  to  Mrs.  Magee.  It 
is~plain  that  both  of  these  parties  are  entitled  to  satisfaction  of 
what  may  be  respectively  due  them,  out  of  the  property  pointed  out 
in  the  bill,  in  preference  to  the  reimbursement  to  the  complainant, 
from  that  source,  of  what  the  estate  which  he  represents  has  paid. 
Nor  is  it  so  much  as  averred  that  the  property  is  of  value  to  sat- 
isfy these  claims. 

In  Berry,  Use  of  Burgess  v.  Nicholls,  2  Harr.  &  Johns.  508; 
Merryman  v.  State,  etc.,  5  ib.  423,  the  sureties  who  had  paid  the 
amount  of  the  judgment  were  permitted  to  sue  out  execution  in 
the  name  of  the  judgment  creditor,  for  their  use,  against  the  prin- 
cipal debtor.  Equity  treated  the  payment  by  the  surety  as  working, 
by  operation  of  law,  a  transfer  of  the  judgment  for  his  use,  so  as 
to  give  him  the  same  process  of  recovery  of  the  money  which  the 
creditor  had.  So  far  as  we  have  examined,  we  do  not  find  well- 
considered  judgments  holding  that  there  can  be  a  partial  transfer 
by  legal  operation.  A  partial  payment  does  not  have  that  effect, 
unless  it  be  a  balance  which  satisfies  what  is  due  the  creditor.  In 
Hollings worth  v.  Floyd,  2  Harris  &  Gill,  91,  such  assignment  was 
repudiated  and  denied,  where  the  surety  had  paid  but  part  of  the 
debt,  and  still  owed  a  balance  to  the  creditor;  and  also  rejected  as 
an  anomaly  a  pro  tanto  assignment,  the  effect  of  which  would  be  to 
give  distinct  interests  in  the  same  debt  to  both  creditor  and  debtor,  y 

The  assignment  to  Mrs.  Magee  of  part  of  the  judgment,  gives  J  A- 
her  an  equal  right  pro  tanto  with  the  creditor.  She  would  be  pro- 
tected" in  a  court  of  law,  in  the  use  of  its  process  to  levy  the  debt 
compulsorily.  If  the  complainant  could  be  relieved  in  the  mode  spe-  - 
cifically  prayed,  his  right  under  the  judgment  would  be  subordinate 
to  Mrs.  Magee,  and  also  to  the  creditor  for  any  balance  due  him. 
It  is  distinctly  declared  in  Garnett  v.  Blodgett,  39  N.  H.  152,  "that 
the  surety's  right  could  only  accrue  upon  his  payment  of  the  whole 
amount  of  the  creditor's  claim."  "The  creditor's  rights  must  be  en- 
tirely divested  before  another  can  be  substituted  by _ mere  operation 
of  law,  in  his  place,  so  as  to  have  them  vest  in  him."  Stamford 
Bank  v.  Blodget,  15  Conn.  437;  Belcher  v.  Hartford  Bank,  15  ib. 
381 ;  Union  Bank  of  Maryland  v.  Edwards,  1  Gill  &  Johns.  346.  In 
Kyner  v.  Kyner,  6  Watts  227,  the  court  says :  "There  shall  be  no 
interference  with  the  creditor's  rights  or  securities,  which  by  pos- 
sibility might  prejudice  or  embarrass  him  in  the  collection  of  the 
residue  of  his  debt.    The  surety  must  satisfy  first  his  entire  debt." 


V 


600  SUBROGATION 

We  do  not  understand  the  rule  as  requiring  that  [the  "surety"  -jgagt 
make  entire  payment;  it  is  enough  if  the  creditor  has. Deen  tully  ~ 
paid,  part  hy  the  principal  debtor,  and  part  by  the  surety.  In  such 
case,  subrogation  will  accrue  pro  tanto  to  the  extent-  of- rrrs-~pay- 
ment.  Such  would  be  the  effect,  if  two  or  more  sureties  contrib- 
uted in  equal  or  unequal  amounts  to  the  payment.  Bank  of  Penn- 
sylvania v.  Potaces,  10  Watts  152;  Hardcastle  v.  Commercial  Bank, 
1  Harring  374.  If  these  adjudications  affirm  the  principle  correctly, 
as  we  think  the}'  do,  then 'the  complainant  can  not  lie  substituted 
to  the  place  of  the  creditor  against  the  principal  debtor,  because 
the  surety  Has  not  entirely  divested  the  rights  of  the  creditor  orJLiis 
assignee,    Mrs.   1\  Fagee . 

But  notwithstanding,  he  sustains  the  relation  to  the  principal 
debtor,  of  a  creditor,  for  money  paid  on  his  account,  which  the 
debtor,  ex  equo  et  bono,  is  under  a  duty  to  refund,  and  may  recover 
in  this  suit  unless  the  remedy  is  barred.  As  we  have  seen,  the 
cause  of  action  arises  from  the  payment  to  the  creditor.  In  this 
case,  the  payment  was  made  the  26th  of  September,  1866.  The 
statute  of  limitations  was  then  suspended,  and  so  continued  until 
twelve  months  after  the  close  of  the  war.  That  was  determined 
by  the  president's  proclamation  to  have  ended  the  2d  of  April, 
1866.  The  statute  began  then  to  run  the  2d  of  April,  1867.  The 
three  years  within  which  suit  might  be  brought,  expired  the  2d  of 
April,  1870.  The  bill  was  filed  the  5th  of  October  of  that  year,  so 
that  the  remedy  was  cut  off.  It  is  not  necessary  to  consider  any  of 
the  other  questions  that  would  be  raised  upon  the  record. 

It  follows  that  there  was  error  in  overruling  the  demurrer  of  the 
defendants. 

Decree  reversed,  and  judgment  here  sustaining  the  demurrer  and 
dismissing  the  bill. 

Accord:  Bank  of  Fayetteville  v.  Lorwein,  76  Ark.  245,  88  S.  W.  919;  Mus- 
grave  v.  Dickson,  172  Pa.  St.  629,  33  Atl.705,  51  Am.  St.  765;  Cason  v.  Con- 
nor, 83  Tex.  26,  18  S.  W.  668. 


FORBES  v.  JACKSON 
19  Ch.  D.  615   (1882). 

By  an  indenture  of  lease  dated  the  1st  of  July,  1854,  certain  prem- 
ises situate  at  Islington  were  demised  by  Henry  Witten  to  William 
Spence,  his  executors,  etc.,  for  the  term  of  ninety-five  years,  from 
the  24th  of  June,  1852,  subject  to  a  yearly  rent  of  £10  and  the  usual 
covenants. 

By  an  indenture  of  mortgage  dated  the  28th  of  December,  1854, 
made  between  William  Spence  of  the  first  part,  the  plaintiff  J.  S. 
Forbes  of  the  second  part,  and  A.  Weir  of  the  third  part,  William 


I 


-f. 


WHEN    THE    RIGHT   ARISES  601 


Spence  assigned  the  same  premises  unto  A.  Weir,  his  executors,  etc., 
to  secure  the  repayment  of  a  sum  of  £200  and  interest  at  five  per 
cent. ;  and  he  also  assigned  to  Weir  a  policy  of  assurance  on  his  ' 
own  life  for  £250.  The  legal  estate  in  the  premises  was  at  the  date 
vested  in  the  plaintiff  as  the  surviving  trustee  of  a  marriage  set- 
tlement made  in  September,  1854,  but  which  had  ceased  to  have 
any  effect.  The  proviso  for  redemption  of  the  premises  and  policy 
was  that  on  payment  by  William  Spence,  his  heirs,  executors,  ad- 
ministrators, or  assigns,  of  the  sum  of  £200  to  A.  Weir,  his  exec- 
utors, administrators,  or  assigns,  he  or  they  would  reassign  the  » 
premises  and  policy  "unto  W.  Spence,  his  executors,  administrators, 
or  assigns,  or  as  he  or  they  should  direct." 

By  the  same  indenture  the  plaintiff,  for  himself  only,  and  not  so 
as  to  bind  his  executors,  covenanted  with  A.  Weir,  his  executors, 
administrators,  and  assigns,  that  while  the  sum  of  £200.  or  any  part 
thereof  should  remain  owing  he  would  pay  unto  A.  Weir,  his  exec- 
utors, administrators,  and  assigns,  interest  at  five  per  cent.,  and  also 
pay  the  premiums  on  the  policy  of  assurance ;  and  as  a  further  se- 
curity for  the  payment  of  the  interest  and  premiums  the  plaintiff 
assigned  unto  A.  Weir  a  policy  of  assurance  on  his  own  life  for 
£100,  and  covenanted  to  pay  the  premiums. 

The  plaintiff  joined  in  the  mortgage  as  surety  for  William  Spence,    ' 
A.  Weir  having  declined  to  advance  the  £200  to  W.  Spence  unless 
the  plaintiff  entered  into  the  covenants  and  made  the  assignment 
above  mentioned. 

Subsequently  to  the  28th  of  December,  1854,  i.  e.,  in  May,  1856, 
August,  1863,  August,  1864,  and  May,  1866,  William  Spence  bor- 
rowed sums  of  money  amounting  to  £530  from  A.  Weir,  and  by  four 
indentures  charged  the  same  premises  with  the  payment  thereof  and 
interest.  The  plaintiff  had  no  knowledge  of  these  advances  having  , 
been  made  until  the  6th  of  November,  1875.  William  Spence  paid 
interest  on  the  £200  until  the  28th  of  June,  1867,  and  he  also  paid  the 
premiums  on  his  policy. 

A.  Weir  died  in  September,  1878,  having,  by  his  will,  made  in 
1874,  appointed  three  executors,  the  defendants  Jackson  and  Robins 
being  two  of  them,  and  they,  in  September,  1878,  made  a  demand 
upon  the  plaintiff  for  arrears  of  interest  on  the  £200  from  the  28th 
of  June,  1867.  The  plaintiff  paid  the  arrears,  and  also  the  interest 
which  accrued  due  up  to  the  28th  of  December,  1879,  under  the 
mortgage  of  December,  1854,  and  he  had  also  paid  the  premiums 
on  the  policy  of  assurance  on  the  life  of  William  Spence  from  the 
year  1868  up  to  the  present  time,  and  he  had  paid  certain  costs  in 
connection  with  the  mortgage. 

On  the  22d  of  December,  1879,  the  plaintiff  gave  to  the  defend- 
ants Jackson  and  Robins  notice  of  his  intention  to  pay  off  the  £200, 
and  on  the  28th  of  June,  1880,  he,  in  pursuance  thereof,  tendered 
that  sum,  together  with  the  half-year's  interest,  and  offered  to  pay 


602 


SUBROGATION 


any  costs  properly  payable  in  respect  to  the  mortgage,  and  requested 
them  to  transfer  to  him  all  the  securities  comprised  in  the  mort- 
gage, including  the  leasehold  premises,  but  they  declined  to  accept 
the  £200,  and  required  the  plaintiff  not  only  to  pay  that  sum,  but 
also  to  pay  the  four  other  sums  advanced  to  W.  Spence,  and  the 
arrears  of  interest  due  thereon.  They,  however,  offered  to  accept 
the  i200,  and  to  assign  to  the  plaintiff  the  two  policies  of  assurance, 
but  they  claimed  to  retain  the  leasehold  premises  as  security  for 
the  other  sums  advanced. 

The  questions  were,  whether  on  payment  by  the  plaintiff  of  the 
£200,  and  the  interests,  premiums,  and  costs  (if  any)  due  in  re- 
spect of  the  mortgage  of  the  28th  of  December,  1854,  hewas  en- 
titled to  have  all  or  any  of  the  securities  comprised  therein  trans- 
ferred to  him,  and  to  hold  the  same  as  security  for  the  repayment 
of  the  sums  paid  by  him  under  the  mortgage;  and  by  whom  the 
costs  of  the  action  were  to  be  borne. 

The  arguments  which  have  been  submitted  on  behalf  of  the  exec- 
utors do  not  affect  the  conclusion  which  I,  in  the  course  of  them, 
intimated  that  I  had  come  to ;  nor  do  they  affect  the  principle  laid 
down  in  the  case  of  Newton  v.  Chorlton  to  which  I  referred  on 
Thursday  last.  I  consider  that  the  decision  in  that  case  is  per- 
fectly good  law,  subject  to  this  observation,  that  Vice-Chancellor 
Sir  W.  Page  Wood  expressed  an  opinion  that  where  an  additional 
security  is  taken  by  the  creditor  after  the  original  security  was 
given  and  the  contract  of  suretyship  entered  into  the  right  of  the 
surety  as  regards  the  securities  given  to  the  principal  creditor  did 
not  extend  to  the  additional  securities.  The  vice-chancellor  did 
not  think  that  the  cases  went  so  far  as  to  give  a  surety  the  benefit 
of  the  security  subsequently  taken  by  the  creditor.  But  that  is 
a  view  which  never  commended  itself  to  me,  and  it  was  certainly 
not  adopted  by  Lord  Justice  Knight  Bruce  and  Lord  Justice  Tur- 
ner in  a  case  before  them  of  Lake  v.  Brutton,  8  D.  M.  &  G.  441, 
and  I  may  observe  that  Vice-Chancellor  Sir  W.  Page  Wood  him- 
self, in  a  case  afterward  before  him  of  Pledge  v.  Buss,  Joh.  663, 
668,  stated  that  his  judgment  in  that  case  had  been  disapproved 
of  by  those  lord  justices,  although  not  absolutely  overruled.  The 
vice-chancellor  added:  "I  am  as  much  bound  to  submit  to  their 
opinion  as  if  the  decision  had  been  reversed  on  appeal  before  them." 
The  vice-chancellor  did  not  mention  the  names  of  the  cases  to  which 
he  referred,  but  I  may  state  that  some  twenty  years  ago  in  my 
copy  of  Mr.  Johnson's  reports  I  noted  against  Pledge  v.  Buss  the 
case  of  Lake  v.  Brutton  as  being  the  one  which  the  vice-chancellor 
had  in  his  mind,  and  there  is  also  another  case  of  Pearl  v.  Deacon, 
1  De  G.  &  J.  461,  which  I  thought  was  referred  to  by  him.  That 
was  an  appeal  from  a  decision  of  the  late  Master  of  the  Rolls  (Sir 
John  Romilly),  24  Beav.  186.    It  was  the  case  of  a  subsequent  se- 


WHEN    THE    RIGHT    ARISES  603 

curity ;  but  it  is  not  material  for  my  purpose  to  consider  the  gen- 
eral question  whether  there  has  been  a  release,  or  what  is  the 
effect  of  taking  an  additional  security,  and  then  whether  that  addi- 
tional security  should  be  held  available  for  the  benefit  of  the  surety. 
There  has  never  been,  so  far  as  I  know,  any  disapproval  of  the 
general  principle  which  was  laid  down  by  the  vice-chancellor  in 
Newton  v.  Chorlton,  10  Hare  646,  except  so  far,  if  at  all,  as  the 
Master  of  the  R.olls  may  have  dealt. with  it  in  Farebrother  v.  Wode- 
house,  23  Beav.  18,  where  he  seems  to  have  followed  the  case  re- 
lied upon  here  of  Williams  v.  Owens,  13  Sim.  597,  which  certainly, 
if  it  were  law,  would  be  an  authority  in  favor  of  the  executors.  In 
the  case  of  Newton  v.  Chorlton  the  principle  laid  down  by  Vice- 
Chancellor  Sir  W.  Page  Wood  was  that  a  surety  was  to  have  the 
benefit  of  all  securities,  "whether  by  way  of  suretyship  or  mort-:  ytf 
gage,"  and  he  afterward  added  10  Hare  652:  "The  surety  has  a) 
right  at  any  moment  to  every  security  held  by  the  creditor  at  the 
date  of  the  contract — it  has  never  yet  gone  beyond  that;  and  he 
has  further  a  right  to  say,  you  must  always  hold  yourself  in  a  po- 
sition to  be  put  in  motion,  at  any  request,  against  the  principal 
debtor."  I  consider  that  the  decision  in  Newton  v.  Chorlton,  10 
Hare  646,  was  carried  higher  by  the  decision  of  the  Lord  Justices 
in  Lake  v.  Brutton,  8  D.  M.  &  G.  441,  which,  as  I  have  said,  the 
vice-chancellor  himself  recognized  in  Pledge  v.  Buss,  Joh.  663, 
668,  and  I  consider  the  decision  must  be  applicable  to  securi- 
ties taken  subsequently  to  the  original  mortgage.  The  Master  of 
the  Rolls  in  Farebrother  v.  Wodehouse,  23  Beav.  18,  appears  to 
have  followed  Williams  v.  Owen,  13  Sim.  597,  as  it  applies  to  a 
subsequent  security  taken  by  the  original  creditor — that  he  could 
make  advances  to  the  debtor,  and  that  they  would  prevail  over  the 
right  of  the  surety.  That  principle  is  entirely  at  variance  with  the- 
decision  in  Newton  v.  Chorlton,  and  it  is  a  singular  circumstance 
that  in  a  subsequent  case  of  Drew  v.  Lockett,  32  Beav.  499,  before 
him,  although  he  had  followed  Williams  v.  Owen,  Lord  Romilly 
said,  Ibid.  505  :  "I  am  of  opinion  that  a  surety  who  pays  off  the 
debt  for  which  he  became  surety  must  be  entitled  to  all  the  equities 
which  the  creditor  whose  debts  he  paid  off  could  have  enforced, 
not  merely  against  the  principal  debtor,  but  also  as  against  all  per- 
sohT'claiming  under  him."  It  was  odd  that  Lord  Romilly  should 
agree  with  the  principle  laid  down  in  Newton  v.  Chorlton,  and  yet 
come  to  a  conclusion  in  Farebrother  v.  Wodehouse  which  seems 
to  be  at  variance  with  it.  The  principle  on  which  Vice-Chancellor 
Sir  W.  Page  Wood  proceeded  was  the  same  as  laid  down  by  Lord 
Eldon  in  the  case  of  Mayhew  v.  Crickett,  2  Sw.  185,  which  I  con- 
sider a  leading  authority,  and  also  laid  down  in  earlier  cases :  that 
the  surety  is  entitled  to  have  all  the  securities  preserved  for  him, 
which  were  taken  at  the  time  of  the  suretyship,  or,  as  I  think  it  is 


604 


SUBROGATION1 


now  settled,  subsequently.  Nor  does  it  matter  at  all  in  principle, 
whether  the  creditor  takes  a  further  security  for  further  advances 
made  prior  to  the  time  when  the  surety  makes  payment  of  the  debt. 
They  have  nothing  to  do  with  the  surety.  He  is  entitled  to  the 
benefit  of  the  securities,  though  his  payment  be  not  made  until  atter 
the  time  when  the  further  advances  were  made  by  the  creditor. 
The  principle  is  that  the  surety  in  effect  bargains  that  the  securi- 
ties which  the  creditor  takes  shall  be  for  him,  if  and  when  he 
^hall  be  called  upon  to  make  any  payment,  and  it  is  the  duty  of  the 
creditor  to  keep  the  securities  intact ;  not  to  give  them  up  or  to 
burthen  them  with  further  advances.  The  same  principle  was 
enunciated  in  the  case  of  Duncan,  Fox  &  Co.  v.  North  and  South 
Wales  Bank,  11  Ch.  D.  88,  where  the  Master  of  the  Rolls  on  the 
hearing  upon  appeal  from  the  judgment  of  Vice-Chancellor  Little 
said,  Ibid.  95 :  "It  can  not  be  said  that  in  every  instance  a  surety 
is  entitled  to  stand  in  the  place  of  the  principal  creditor  as  regards 
other  securities.  That  is  true  as  regards  securities  given  by  the  debt- 
or, but  it  is  not  true  as  regards  securities  given  by  cosureties."  But 
here  I  have  nothing  to  do  with  the  question  which  was  decided  in 
that  case — a  question  between  persons  alleged  to  be  cosureties.  That 
case  was  carried  to  the  House  of  Lords,  and  is  reported  in  6  App. 
Cas.  1.  The  Llouse  of  Lords,  though  they  reversed  the  judgment  of 
the  Court  of  Appeal,  did  not  say  anything  which  affected  the  princi- 
ple referred  to  by  the  Master  of  the  Rolls,  and  which  is  all  that  I  de- 
sire to  notice.  I  consider  that  the  principle  laid  down  in  that  case  is 
perfectly  plain  and  right ;  and  also  that  the  decision  in  Williams  v. 
Owen,  13  Sim.  597,  is  not  law  now,  and  can  not,  after  the  cases  to 
which  I  have  referred,  be  followed.  I  decline  to  recognize  it. 
There  is  another  case  to  which  I  desire  to  refer,  that  of  Green  v. 
■Wynn,  Law  Rep.  4  Ch.  204,  in  which  there  was  a  surety,  and  Lord 
Hatherly  said,  Law  Rep.  4  Ch.  207,  "but  where  there  is  a  mort- 
gage of  course  any  person  under  a  liability  to  pay  the  interest 
would  be  at  liberty  to  redeem."  I  am  of  opinion,  therefore,  that  the 
plaintiff  was  right  in  his  offer  to  pay  off  the  debt,  and_tha4-4i€-4s 
entitled  to  have  the  securities,  and  to  say  that  the  further  charges 
for  the  sums  subsequently  advanced  are  inoperative  as  against  him. 
The  defendants,  the  executors,  having  refused  the  offer  made,  and 
being  wrong  in  insisting  on  retaining  the  securities  for  the  subse- 
quent advances,  must  pay  the  costs  of  the  action. 

The  declaration  will  be  that  on  payment  to  the  executors  of  what 
shall  be  found  due  for  principal,  interest,  and  costs  in  respect  to 
the  mortgage  of  the  28th  of  December,  1854,  the  plaintiff  is  enti- 
tled to  have  the  securities  comprised  in  the  deed  transferred  to 
him,  and  to  hold  them  as  securities  for  the  repayment  to  him  of 
the  sums  which  may  be  paid  to  the  executors  by  him.  The  costs 
of  the  plaintiff  will  be  deducted  from  the  sum  which  he  may  be  re- 
quired to  pay,  as  in  Wheaton  v.  Graham.  24  Beav.  483 ;  but  the  in- 


SECURITIES    AND    REMEDIES  605 

terest  will  not  be  stopped  as  from  the  date  when  the  offer  of  pay- 
ment was  made. 

Accord :     National   Exchange   Bank   v.    Silliman,   65    N.   Y.   475 ;    Drew   v. 
Lockett,  32  Beav.  499. 


SECTION  4.    TO  WHAT  SECURITIES  AND  REMEDIES 
THE  RIGHT  EXTENDS 


COPIS  v.  MIDDLETON 

,JL-. 


Eng.  Mews.  Turner  &  Russell  224  (1823). 


This  suit  was  instituted  by  creditors  for  the  administration  of 
the  estate  of  John  Knott,  who  died  on  the  28th  of  December,  1792, 
and  by  the  decree  made  upon  the  hearing  of  the  cause,  dated  the 
25th  of  November,  1796,  it  was  referred  to  the  Master  to  take  an 
account  of  the  debts  of  the  said  John  Knott,  and  it  was  ordered,  £ 
that  the  Master  should  inquire  and  state  to  the  court,  whether  the 
defendant  Newman  Knott  had  paid  any  and  what  debts  of  the  said 
John  Knott,  as  surety  for  him,  or  any  and  what  money  in  respect 
of  any  such  debts,  and  whether  the  said  Newman  Knott  received 
any  and  what  consideration,  satisfaction  or  indemnity  in  respect  of 
any  or  either  of  the  said  debts,  and  to  what  extent,  together  with 
the  nature  of  such  security,  satisfaction  or  indemnity. 

The  Master  by  his  report,  dated  the  20th  of  May,  1815,  certified'/ 
that  the  specialty  debts  of  the  said  John  Knott  amounted  to  £16,085, 
and  he  further  certified  that  it  appeared  by  the  evidence  brought  be- 
fore him,  that  the  said  Newman  Knott  became  surety  for  the  said 
John  Knott  to  a  considerable  amount,  and  paid  various  sums  of 
money  on  account  of  such  suretyship,  and  that  he  did  not  find  that 
the  said  Newman  Knott  received  any  consideration,  satisfaction  or 
indemnity  in  respect  of  any  of  such  debts.  In  the  schedule  to  his 
report,  the  Master  included  the  representatives  of  the  said  New- 
man Knott,  and  one  John  Martin,  as  specialty  creditors  of  the  said 
John  Knott,  in  respect  of  sums  paid  by  the  said  Newman  Knott 
and  John  Martin,  respectively,  in  discharge  of  the  principal  and 
interest  of  certain  bonds  entered  into  by  them  as  sureties  for  the 
said  John  Knott,  and  he  allowed  interest  upon  such  principal  sums. 

The  bonds  in  which  Newman  Knott  was  surety,  were  dated  re- 
spectively the  8th  of  August,  1781,  and  the  10th  of  January,  1792, 
and  were  joint  bonds,  executed  by  him  and  the  said  John  Knott, 
to  Richard  Fogden  and  Thomas  Turgis  respectively,  and  were  con- 
ditioned for  securing  the  respective  sums  of  £800  and  £300.  The 
principal  and  interest  remaining  due  upon  these  bonds  was  paid 
by  Newman  Knott  after  the  death  of  John  Knott.     The  bond   in 


COS 


SUBROGATION 


which  John  Martin  was  surety,  was  dated  the  8th  of  October,  1791, 
and  was  also  a  joint  bond,  executed  by  him  and  the  said  John 
Knott  to  John  Boniface,  and  conditioned  for  securing  the  sum  of 
£250.  The  principal  and  interest  due  upon  this  bond  was  paid  by 
Martin  in  the  lifetime  of  John  Knott,  and  the  bond  was  assigned 
to  Martin. 

These  facts  were  brought  before  the  court  by  two  exceptions 
taken  by  the  plaintiffs  to  the  Master's  report,  by  which  it  was  in- 
sisted that  the  Master,  under  the  circumstances,  ought  not  to  have 
considered  as  specialty  debts  the  sums  paid  by  the  said  Newman 
Knott  and  John  Martin  in  respect  to  the  specialty  debts  of  the  said 
John  Knott,  but  ought  to  have  considered  such  sums  as  simple  con- 
tract debts  only,  and  ought  not  to  have  allowed  interest  thereon, 
inasmuch  as  the  said  Newman  Knott  and  John  Martin,  in  making 
such  payments,  did,  as  the  plaintiffs  submitted,  virtually  cancel  the 
bonds  and  specialties,  and  put  themselves  in  the  situation  of  simple 
contract  creditors  of  the  said  John  Knott. 

The  Lord  Chancellor  :  The  facts  of  this  case  are  simply  these, 
|  two  individuals  gave  a  bond,  the  one  as  principal,  and  the  other  as 
j  surety ;  no  other  assurance  was  executed  at  the  time,  no  mortgage 
was  made  to  secure  the  debt,  no  counter-bond  was  given  by  the 
principal  to  the  suretyi;  and  the  question  to  be  decided  is,) whether 
'  the  surety,  having  paid  the  bond  after  it  was  due,  is  a  simple  con- 
tract,  or  a  specialty  creditor.  I  understand  it  to  have  been  the  opin- 
ion of  the  Master,  an  opinion  founded  on  one  or  two  cases  wdiich 
have  been  stated,  that  the  surety  was  to  be  considered  as  a  specialty 
creditor  to  stand  in  the  place  of  the  person  whom  he  paid;  that 
doctrine  appears  to  me  to  be  contrary  to  all  that  has  been  settled 
during  the  whole  time  I  have  been  in  this  court;  everything  that 
was  arranged  in  bankruptcy  before  the  late  statute  enabling  the 
surety  to  prove,  everything  determined  before  appears  to  me  to 
have  authorized  the  court  to  consider  it  quite  clear,  that  if  there 
was  nothing  in  the  case  beyond  what  I  have  stated,  [thesurejtj^-hav- 
ing  paid  the  bond,  could  be  nothing  more  than  a  simple  contract 
creditor  in  respect  of  that  payment ;  the  bond  was  not  assigned  to 
anybody  in  consideration  of  a  sum  of  money  paid,  which  was  one 
way  we  used  to  manage  these  things ;  there  was  no  counter-bond 
given,  which  was  another  way  in  which  we  used  to  manage  these 
things,  so  that  if  the  surety  paid  one  bond  he  became  instantly  a 
specialty  creditor  by  virtue  of  the  other  bond.  If  any  suit  was  now 
instituted,  I  apprehend  the  payment  of  the  bond  would  show  that 
the  bond  was  gone.  There  has  been  a  case  cited  where,  upon  the 
general  ground  that  a  surety  is  entitled  to  the  benefit  of  all  securi- 
ties which  the  creditor  has  against  the  principal,  it  seems  to  have 
been  thought  that  the  surety  was  entitled  to  be  as  it  were  a  bond 
creditor  by  virtue  of  the  bond ;  I  take  it  to  be  exceedingly  clear  if, 
at  the  time  a  bond  is  given,  a  mortgage  is  also  made  for  securing  the 


SECURITIES   AND   REMEDIES  607 

debt,  the  surety,  if  he  pays  the  bond,  has  a  right  to  stand  in  the 
place  of  the  mortgagee,  and  as  the  mortgagor  can  not  get  back  his 
estate  again  without  a  conveyance,  that  security  remains  valid  and 
effectual  security,  notwithstanding  the  bond  debt  is  paid;  but   il? 
there  is  nothing  but  the  bond,  my  motion  is,  that  as  the  law  saysv' 
that  the  bond  is  discharged  by  the  payment  of  what  was  due  upon) 
it,  the  bond  is  gone,  and  can  not  be  set  up.     That  is  the  opinion 
which  I  formed  of  this  case. 
Exceptions  allowed. 


JOHN  H.  LUMPKIN,  ADM.,  v.  AMBROSE  MILLS 
4  Ga,  343  (1848). 


Cls> 


oJU 

By  the  court.     Nisbet,  J.,  delivering  the  opinion. 

This  was  a  bill  filed  by  the  plaintiff  in  error,  as  administrator, 
to  marshal  the  assets  of  his  intestate.  The  defendant  in  his  an- 
swer set  forth  that  as  surety  for  the  plaintiff's  intestate  upon  a  note 
of  hand  under  seal,  he  had  paid  the  debt  of  his  principal,  and  there- 
fore claimed  in  equity,  to  be  subrogated  to  the  rights  of  the  cred- 
itor, and  to  come  in,  in  the  marshalling  of  the  assets,  as  a  bond 
creditor.  The  plaintiff  in  error  claims  that  he  is  only  an  open  ac- 
count creditor.  The  question,  therefore,  and  the  only  question  made 
upon  this  record,  is  this :  Can  a  surety,  in  equity,  upon  the  settle-  v 
ment  of  an  insolvent  estate,  who  has  paid  a  debt  of  his  principal, 
due  upon  an  instrument  under  seal,  be  subrogated  to  the  rights  and 
substituted  to  the  position  of  the  creditor,  so  as  to  come  in  as  a 
creditor  under  that  instrument,  or  is  he  entitled  only  as  a  creditor 
by  open  account? 

(1)  It  is  conceded  in  the  outset,  that  the  authorities  upon  this 
subject  do  not  run  a  uniform  course.    The  early  English  cases  are  - 
with  the  defendant,  and  recognize  the  right  of  subrogation.     Cases  , 
of  the  very  highest  authority  in  Great  Britain,  decided  since  our 
revolution,  settle  the  rule  differently,  and  deny  his  right  to  be  paid, 
otherwise  than  as  a  creditor  by  open  account.     The  American  au- 
thorities are  also  in  conflict,  but  we  think  their  preponderance  is  in  ' 
favor  of  the  early  British  rule.     The  civil  law  also  sustains  that 
rule,  and  so  do  the  authorities  in  those  countries  where  the  civil  ^ 
law   is   recognized.     We   think,   upon   principle,   the   rule    of   the 
British  courts,  anterior  to  our  revolution,  right.    If  it  was  not,  it  is 
obligatory  upon  us  as  law.    The  civil  law  is  the  parent  of  that  rule — 
as  it  is,  in  truth,  of  many,  very  many  of  the  principles  of  equity,  " 
which  obtain  in  the  English  chancery  courts.     That  code  is  not  of 
binding  authority  upon  us,  but  I  recognize  in  it,  in  reference  to 
many  titles  of  the  law,  and  among  them  that   of  principal   and 


• 


608  SUBROGATION 

surety,  the  very  best  system  extant.  Its  broader,  and  more  rea- 
sonable, and  less  fettered  equity,  is  gradually  being  transferred  into 
American  jurisprudence.  And  where  authorities  are  in  conflict 
and  principles  doubtful,  a  court  does  well  to  allow  the  Roman  law 
to  quiet  the  conflict  and  dispel  the  doubt.  We  have  no  difficulty, 
either  upon  authority  or  principle,  in  settling,  as  the  rule  of  this 
court,  that 'a  surety  who  has  paid  the  debt  of  his  principal  is,  in  a 
court  of  equity,  entitled,  in  all  respects,  to  occupy,  in  the  distribu- 
tion of  his  estate,  the  place  of  the  creditor. 

It  is  a  well-settled  doctrine  of  the  common  law,  that  a  surety 
upon  payment  of  the  debt  of  his  principal,  is  entitled  to  an  assign- 
ment of  all  the  independent  securities  in  the  hands  of  the  creditor, 
with  all  the  remedies  which  he  had  to  enforce  them  against  the 
principal.  The  Roman  law  goes  farther.  By  that  law,  not  only 
is  he  entitled  to  these  securities,  but  he  is  also  entitled  to  be  sub- 
stituted as  to  the  very  debt  itself,  to  the  creditor,  by  way  of  cession 
or  assignment.  The  debt  in  favor  of  the  surety  is  treated,  not  as 
a  paid,  extinguished  debt,  but  as  sold  to  him — all  its  original  obliga- 
tory force  continuing  against  the  principal.  The  surety  is  viewed 
in  the  light  of  a  purchaser.     *     *     * 

The  courts  of  Great  Britain,  in  some  of  the  earlier  cases,  en- 
larged the  rule  that  I  stated  was  settled,  to  wit :  that  a  surety  is  en- 
titled to  the  independent  collateral  securities,  with  all  thelffea'itor's 
remedies  to  enforce  them  against  the  principal;  and  held  that  the 
-surety  should  be  also  entitled  to  an  assignment  of  the  very  debt 
itself ;  thus  going  the  full  length  of  the  civil  law,  and  subrogating 
him  fully  to  the  rights  of  the  creditor.  The  rule  thus  enlarged, 
we  recognize  as  the  common-law  rule,  at  the  time  we  adopted  it. 
In  Ex  parte  Crisp,  Lord  Hardwick  said,  that  where  a  surety  paid 
off  a  debt,  he  was  entitled  to  have  from  the  creditor,  an  assign- 
ment of  the  security,  to  enable  him  to  obtain  satisfaction  for  what 
he  has  paid  beyond  his  proportion.  1  Atkins  133.  In  Morgan  v. 
Seymour,  the  court  decreed  that  the  creditor  should  assign  over 
his  bond  to  the  two  sureties,  to  enable  them  to  help  themselves 
against  the  principal  debtor.  1  Ch.  R.  64.  The  principle  was  ap- 
plied in  a  very  strong  case  in  Vernon.  The  principal  had  given  bail 
in  an  action,  and  judgment  was  recovered  against  the  bail.  After- 
ward the  surety  to  the  original  debt  was  called  upon  and  paid  it, 
and  it  was  held  that  he  was  entitled  to  an  assignment  of  the  judg- 
ment against  the  bail.  So  that,  although,  the  bail  was  but  a  surety, 
as  between  him  and  the  principal  debtor,  yet  coming  in  the  room  of 
the  principal,  as  to  the  creditor,  it  was  held  that  he  likewise  came 
in  the  room  of  the  principal  debtor,  as  to  the  surety.  This  case 
establishes  that  the  surety  had  precisely  the  same  rights  that  the 
creditor  had,  and  shall  stand  in  his  place — a  case  of  entire  subro- 
gation. Parsons  v.  Briddock,  2  Vernon  608.  These  three  cases 
are  anterior  to  the  era  of  the  revolution,  and  demonstrate  how  the 


A 

SECURITIES    AND    REMEDIES  609 

law  stood  at  that  time ;  and  considering  that  we  are  not  at  liberty 
to  depart  from  the  common  law,  as  it  then  stood,  and  that  up  to 
that  time  the  rule  was  not  seriously  questioned,  we  might  stop  the 
review  here.  It  may,  however,  be  more  satisfactory  to  press  the 
discussion  through  the  course  of  this  question,  down  to  the  present 
moment,  and  to  look  into  the  reasonableness  of  the  modern  English 
rule.  Other  cases  since  that  era  recognize  the  doctrine  as  held 
in  the  three  cases  referred  to. 

It  is  nevertheless  true,  as  Mr.  Story  states,  that  the  rule  is  now 
different  in  England.  Without  following  the  authorities  minutely 
through,  it  may  be  stated  that  the  late  rule,  which  denies  the  right 
of  the  surety  to  a  cession  of  the  debt  itself,  and  to  a  perfect  sub- 
stitution for  the  creditor,  rests  chiefly  upon  two  comparatively  re- 
cent cases,  determined  by  two  of  the  ablest  chancellors  of  England. 
I  allude  to  the  case  of  Copis  v.  Middleton,  1  Turner  &  Russ.  224, 
determined  by  Lord  Eldon,  and  Hodgson  v.  Shaw,  3  Mylne  & 
Keene  183,  determined  by  Lord  Brougham.  These  are  names  of 
pre-eminent  authority,  and  their  weight  settles  all  controversy  about 
the  matter  at  this  moment,  in  England.  It  is  not  a  little  remarkable, 
that  names  of  authority  equally  conclusive,  on  this  side  of  the  water, 
are  arrayed  against  these  potent  chiefs  of  the  English  chancery,  to 
wit :  Marshall  and  Kent.  Neither  Lord  Eldon  nor  Lord  Brougham 
questions  the  rule,  that  a  surety  is  entitled  to  an  assignment  of  the 
collateral  securities.  The  former  said,  ''It  is  a  general  rule  in 
equity,  that  the  surety  is  entitled  to  the  benefit  of  all  the  securities 
which  the  creditor  has  against  the  principal.  But  then  the  nature 
of  those  securities  must  be  considered.  When  there  is  a  bond 
merely,  if  an  action  was  brought  upon  the  bond,  it  would  appear 
upon  oyer  of  the  bond,  that  the  debt  was  extinguished.  The  gen- 
eral rule  must  be  qualified,  therefore,  by  considering  it  to  apply 
to  such  securities  as  continue  to  exist  and  do  not  get  back  upon 
payment  to  the  person  of  the  principal  debtor."  Lord  Brougham 
says :  "Thus  the  surety  paying  is  entitled  to  every  remedy  which 
the  creditor  has.  But  can  the  creditor  be  said  to  have  any  specialty, 
or  any  remedy  or  any  specialty,  after  the  bond  is  gone  by  payment? 
The  surety  may  enforce  any  security  which  the  creditor  has,  but 
by  the  supposition,  there  is  no  security  to  enforce,  for  the  payment 
has  extinguished  it."  The  whole  of  this  reasoning  is  founded 
upon  the  technical  idea,  that  the  payment  by  the  surety  is  an  ex- 
tinguishment of  the  debt;  and  being  so  extinguished,  if  the  evidence 
of  it  were  assigned  to  the  surety,  it  will  avail  him  nothing.  It  may  be  / 
true,  that  in  a  suit  on  the  bond  in  the  case  at  this  bar,  by  the  surety, 
he  might  be  met  and  defeated  by  a  plea  of  payment.  Be  it  so.  We 
are  not  in  a  court  of  law.  And  really,  it  would  seem  that  the  reason- 
ing of  these  great  chancellors  would  rather  fall  appropriately  from 
the  lips  of  Lord  Kenyon  or  Mansfield  in  a  court  of  law,  than  from 
39— De  Witt. 


610 


SUBROGATION 


theirs  in  a  court  of  equity.  For  it  will  be  seen  that  the  rights  of 
the  surety  in  this  matter  depend  upon  no  such  subtle  technicality, 
but  upon  an  equity,  which  springs  out  of  the  fact  of  payment,  and 
out  of  his  relation  to  the  principal  debtor.  It  may  be  well  ques- 
tioned whether  upon  principles  of  common  sense  and  common 
equity,  the  payment  by  a  surety  out  of  his  own  funds,  of  the  debt 
of  another,  in  the  consideration  of  which  he  was  not  at  all  inter- 
ested, ought  to  be  considered,  as  to  the  surety,  an  extinguishment. 
Upon  a  question  as  to  the  right  of  subrogation,  a  chancellor  ought 
not  so  hold  it.  These  cases  go  upon  the  fact  that  the  debt  is  in 
law  extinguished.  The  civil  law,  addressing  itself  to  the  equity  of 
the  transaction,  will  not  admit  that  it  is  extinguished,  but  bought 
by  the  surety.  A  purchaser  of  a  negotiable  security  for  value  would, 
upon  the  instrument,  acquire  the  rights  of  the  original  creditor. 
How  can  he  occupy  a  position  in  a  court  of  equity,  more  favorable 
than  a  surety !  The  equities  are  stronger  in  favor  of  the  surety. 
Whilst  upon  this  phase  of  the  argument,  it  may  be  well  to  say, 
that  it  is  quite  immaterial  whether  there  is  in  point  of  fact  an 
assignment  of  the  debt  or  not;  for  if  upon  equitable  principles  the 
surety  is  entitled  to  it,  chancery  will  consider  that  as  done,  which 
ought  to  have  been  done.  12  Wheat.  596.  And  if  necessary,  would 
decree  an  assignment  to  be  made.  Equity  will  not  permit  the 
creditor  to  prejudice  the  rights  of  the  surety,  by  a  refusal  to  make 
an  assignment.  Upon  what  principle  is  it  that  the  surety  is  entitled 
to  the  collateral  securities  in  the  hands  of  the  creditor?  It  is  not 
by  virtue  of  a  contract  between  him  and  the  principal.  The  only 
contract  between  them,  is  the  implied  contract  which  results  from 
the  relation  of  principal  and  surety.  And  that  is,  that  if  the  surety 
is  compelled  to  pay  the  debt,  the  principal  will  reimburse  him.  It 
is  upon  this  implied  contract  that  the  surety  is  entitled  to  his  action 
for  money  paid  to  the  use  of  his  principal.  This  contract  does 
not  give  him  the  right  to  the  collateral  securities.  How  then  do 
Lords  Eldon  and  Brougham  arrive  at  the  right  of  the  surety  to 
the  collateral  securities?  It  is  by  invoking  the  equity  which  flows 
necessarily  out  of  the  payment  and  relationship  of  the  parties. 
Hear  what  Lord  Brougham  says:  "The  rule  here  is  undoubted, 
and,  it  is  founded  upon  the  plainest  principles  of  natural  reason  and 
justice,  that  a  surety  paying  off  a  debt,  shall  stand  in  the  place  of 
the  creditor,  and  have  all  the  rights  which  he  has,  for  the  purpose 
of  obtaining  reimbursement.  It  is  hardly  possible  to  put  this  right 
of  substitution  too  high,  and  the  right  results  more  from  equity 
than  contract  or  quasi  contract,  unless,  in  so  far  as  the  known 
equity  may  be  supposed  to  be  imputed  into  a  transaction,  and  so  to 
raise  a  contract  by  implication."  Now,  what  I  have  to  say  in  ref- 
erence to  this  reason,  is  this :  it  applies  in  equal  force  in  favor  of 
the  surety's  right  to  a  transfer  of  the  debt  itself,  as  in  favor  of  his 


SECURITIES    AND    REMEDIES 


611 


right  to  a  transfer  of  the  collateral  securities.  He  is  entitled  to 
the  latter,  not  by  contract,  but  according  to  principles  of  natural 
reason  and  justice.  By  these  principles  he  is  made  to  stand  in  the 
place  of  the  creditor.  And  so  standing,  the  right  to  the  collateral 
securities  follows.  Here  is  the  doctrine  of  substitution  recognized,  - 
and  the  powers  of  a  court  of  chancery  are  invoked  to  give  it  ef- 
fect. The  doctrine  once  admitted,  and  it  seems  to  me  impossible 
to  escape  from  the  conclusion,  that  whatever  are  the  rights  of  the 
creditor,  anterior  to  the  payment,  and  subsisting  at  the  time,  they 
devolve  upon  the  surety.  The  principles  of  natural  reason  and  jus- 
tice pass  then  to  him.  And  one  of  these  rights,  in  the  case  before  , 
us,  is  to  be  let  in,  in  the  distribution  of  the  estate  of  the  debtor,  as 
a  specialty  creditor,  if  the  debt  had  not  been  paid  by  the  surety.  He 
paying  it,  is  subrogated  to  that  right.  He  is  clearly  as  much  sub- 
rogated to  that  right  as  he  can  be  to  the  right  of  enforcing  a  mort- 
gage or  any  other  collateral  security.  I  can  not,  I  do  not  recog- 
nize the  conclusiveness  of  the  reason,  that  the  bond  is  paid,  and 
therefore,  as  to  that  right,  the  substitution  can  not  take  place.  The 
substitution  of  the  surety  is  not  for  the  creditor  as  he  stands  re- 
lated to  the  principal  after  the  payment,  but  as  he  stood  related  to 
him  before  the  payment.  He  is  subrogated  to  such  rights  as  the 
creditor  then  had  against  the  principal.  One  of  which  unques-  . 
tionably  was,  to  enforce  his  bond  against  the  principal,  and  if  he 
was  insolvent,  to  be  let  in  as  a  bond  creditor.  What  difference  is - 
there  between  permitting  a  surety  to  reimburse  himself  out  of  a 
mortgage  lien  held  by  the  creditor,  and  permitting  him  to  take  out 
of  the  estate  generally  of  the  principal,  the  amount  he  has  paid? 
If  he  realizes  upon  the  mortgage,  he  abstracts  the  amount  which 
he  has  paid  from  the  estate  of  the  principal — if  he  realizes  on  the 
bond,  the  mortgaged  property  goes  back  into  the  common  fund, 
and  the  result  to  him  and  to  other  creditors  is  the  same.  The  very 
fact  that  the  surety  could  not  enforce  the  bond  at  law  is  a  reason 
in  equity  why  he  should  be  allowed  to  come  into  the  distribution 
as  a  bond  creditor.     *     *     * 

In  the  New  York  chancery,  it  may  be  assumed  as  an  incontro- 
vertible fact,  that  the  rule  of  the  civil  law  prevails.  There /a  surety, 
who  has  paid  the  debt  is  considered  as  a  purchaser  of  the  security 
upon  which  it  is  founded.  Chancellor  Kent,  in  Cheeseborough  v. 
Millard,  says:  "If  a  creditor  to  a  bond  exacts  his  whole  demand 
of  one  of  the  sureties,  that  surety  is  entitled  to  be  substituted  in 
his  place,  and  to  a  cession  of  his  rights  and  securities,  as  if  he  was 
a  purchaser,  either  against  the  principal  debtor  or  the  cosureties." 
1  Johns.  Ch.  R.  413.  Now  this  dictum  asserts  more  than  the  surety 
is  entitled  to  a  cession  of  the  collateral  securities  and  to  the  rights 
of  the  creditor  thereon — it  declares  the  principle  of  the  civil  law, 
that  he  is  to  be  considered  as  a  purchaser  from  the  creditor  of  the 


612  SUBROGATION 

debt.  It  therefore  denies  the  position  of  Lord  Eldon,  that  the  pay- 
ment by  the  surety  is  an  extinguishment  of  the  debt,  and  of  course 
all  the  conclusions  drawn  from  that  position.     *     *     * 

We  are  the  better  satisfied  with  our  judgment  in  this  case,  for 
the  reason  that  the  substitution  does  injustice  to  no  one.  The 
creditor,  of  course,  has  nothing  to  do  with  it — he  is  satisfied,  and 
if  the  representatives  of  the  principal,  if  he  be  dead,  or  if  the  prin- 
cipal debtor  himself,  being  in  life,  can  be  presumed  to  be  unaf- 
fected by  the  paramount  equity  of  his  sureties'  claim,  he  and  they 
must  be  presumed  to  be  indifferent,  whether  it  is  allowed  to  him, 
or  is  reserved  for  creditors  of  a  lower  grade.  Let  the  amount  of 
the  claim  go  either  way,  no  injustice  can  be  done  to  him.  In  any 
event,  it  goes  in  payment  of  his  debts.  If  anybody  is  entitled  to 
complain,  it  is  the  creditor  who,  holding  a  lower  grade  of  claim,  is 
excluded  by  the  substitution  of  the  surety.  But,  really,  no  injustice. 
is  done  to  him.  The  surety,  by  paying  the  debt  to  the  creditor,  ab- 
stracts from  the  "assets  of  the  principal  debtor,  just  that  amount 
„  which  the  creditor  himself  would  have  abstracted,  if  he  had  not 
paid  it.  The  surety  could  compel  the  creditor  indeed  to  go  upon 
that  fund  before  resorting  to  him.  Story's  Com.,  Vol.  I,  592 ;  1 
Vern  1,  89;  6  Vesey  734;  2  John.  Ch.  R.  561,  562.  So  the  creditor, 
by  claim  of  lower  grade,  is  in  no  worse  condition  than  he  would 
be  if  the  security  had  not  paid  the  debt. 

Our  judgment,  too,  derives  support  from  the  obvious  policy  of 
all  our  own  legislation,  relative  to  the  substitution  of  sureties.  That 
policy  is  to  place  the  surety  in  the  place  of  the  creditor.  Witness 
the  several  acts  of  the  legislature  giving  to  sureties  the  control  of 
executions  against  their  principals,  when  paid  by  them.  Counsel  for 
the  plaintiff  in  error  have  sought  to  draw  from  these  acts  the  con- 
trary inference.  The  right  of  substitution  being  given  by  express 
act  of  the  legislature^  the  inference,  say  they,  is,  that  in  the  judg- 
menl  of  the  legislature,  it  did  not  before  exist.  But  we  think  the 
legislation  of  Georgia  upon  this  subject,  is  in  affirmance  of  the 
right  as  it  existed  upon  general  equitable  principles  before,  and  is 
only  intended  to  cumulate  and  simplify  the  remedy  by  which  it  is 
enforced. 

Let  the  judgment  of  the  court  below  be  affirmed. 


i 

>i  i  r^^j^' 

SECURITIES    AND   REMEDIES  613 

THEOPHELIA  G.  TOWNSEND,  RESPONDENT,  v. 
OLIVER  B.  WHITNEY,  APPELLANT  , 

75  N.  Y.  425  (1878). 

Earl,  J.:  The  defendant  and  Solomon  A.  Ferris  were  ap- 
pointed by  the  surrogate  of  Ulster  county  administrators  of  the  . 
estate  of  John  J.  Ferris,  deceased,  and  upon  such  appointment, 
they  gave  the  bond  required  by  law,  signed  by  them  and  by  William 
H.  Townsend  and  another  who  is  now  dead,  as  sureties.  Sub- 
sequently the  administrators  accounted  before  the  surrogate,  and 
he  made  a  decree  by^which_he  ordered  them  to  pay^certain  sumsj'- 
to  Mrs.  Lqye^  Mrs.  Ferris,  and  Mrs.  Elting,  respectively,  as  their 
disJn^uTi^sliares~of  thc~es£ate.  These  sums  not  having  been  paid, 
subsequently  a  certificate  of  the  decree  was  obtained  from  the  sur- 
rogate, and  the  decree  was  docketed  in  the  clerk's  office  of  Ulster 
county,  under  the  provisions  of  chapter  460  of  the  Laws  of  1837, 
as  amended  by  chapter  104  of  the  Laws  of  1844.  The  decree  did 
not  become  merged  by  docketing  the  same.  The  docket  -did.,  not 
make  it  a  judgment,  but  simply  made  it  a  lien  upon  real  estate  for 
the  amounts  shown  in  the  certificate ;  and  executions  could  there-^ 
aftef^5eTssued~To~errforce  the  same,  as  upon  judgments  recovered 
in  the  county  court.  After  the  decree  was  thus  docketed,  the  per- 
sons in  whose  favor  it  was  docketed  had  two  remedies  to  enforce 
payment  of  the  money  due  them;  one  by  attachment  against  the 
administrators  in  the  surrogate's  court  and  another  by  executions 
based  upon  the  docket.  The  two  remedies  are  not  inconsistent, 
but  concurrent  or  cumulative ;  and  they  may  both  be  pursued  until 
the  decree  has  been  complied  with. 

Executions  were  issued  and  returned  unsatisfied,  and  then,  upon 
appjication/the  surrogate  assigned  the  bond  to  the  persons  in  whose  > 
favor  the   decree  was  made,   for  the  purpose   of   prosecution   by 
them.     (65,  Chap.  460  of  the  Laws  of  1837.) 

Mrs.  Love,  Mrs.  Ferris,  and  Mrs.  Elting  then  commenced  ac- 
tions upon  the  bond  against  the  administrators  and  Townsend,  the 
survjvjrig_sirrety,  and  recovered  each  a  judgment  for  the  amount 
TKjeher.  Then  Townsend,  the  surety,  with  his  own  money,  paid 
the  amounts  of  the  judgments  to  Mrs.  Love,  Ferris,  and  Elting, 
and  procured  them  to  assign  the  judgments  and  also  the  decree  of 
the  surrogate  to  the  present  respondent,  his  wife.  This  he  did  for 
the  purpose  of  enabling  her  to  proceed  by  attachment  against  the 
administrators  to  compel  payment  by  them.  She  then  applied  to 
the  surrogate  for  an  attachment  against  the  administrators  for 
not  paying  the  money  as  directed  by  the  decree,  and  he  denied  the 
remedy  on  the  ground  that  the  payments  of  the  judgment  by  the 
surety,  in  the  manner  above  mentioned,  discharged  both  the  decree 


014 


SUBROGATION 


and  the  judgments.  But  his  decision  was  upon  appeal  reversed  by 
the  Supreme  Court,  and  the  administrator,  Whitney,  has  appealed 
to  this  court. 

The  appellant  now  claims  that  the  /decree  was  merged  in  the 
,  judgments  subsequently  obtained  upon  The  bond,  and  hence  that  an 
attachment  to  enforce  it  is  unauthorized^  This  claim  is  not  well 
founded.  The  decree  was  the  principal  debt,  and  the  bond  was  a 
collateral  security  for  such  debt.  The  judgments  were  not  recov- 
ered upon  the  decree,  but  upon  the  bond.  It  is  too  clear  to  need 
argument  that  a  judgment  upon  a  collateral  security  does  not  merge 
the  principal  debt,  and  does  not  suspend,  so  long  as  it  remains  un-/ 
paid,  any  remedy  upon  the  principal  debt.  (Day  v.  Leal,  14  J.  R. 
405 ;  Baker  v.  Martin,  3  Barb.  634 ;  Supervisors  of  Livingston  Co. 
v.  White,  30  id.  72.)  The  parties  entitled  to  payment  under  the 
decree  had  the  right  to  pursue  their  remedies  upon  the  decree  and 
also  upon  the  bond,  until  they  obtained  satisfaction. 

It  is  aL^o  contended,  on  behalf  of  the  appellant,  that  the  payment 
of  the  judgments  by  Townsend,  in  the  manner  above  mentioned, 
'  satisfied  both  the  decree  and  the  judgments.     It  is  probably  truef 
that  the  case  is  not  altered  by  the  assignment  to  Mrs.  Townsend., 
She  had  no  separate  estate  and  no  means.     Her  husband  furnished  J ; 
the  money  to  pay  the  judgments,  and  the  assignments  to  her  were 
merely  formal,  to  enable  him,  in  her  name,  to  enforce  the  decree)    | 
This  case  may  therefore  be  treated  as  if  the  surety  had  paid  the 
judgments,  and  then  taken  an  assignment  of  them,  and  also  of  the 
decree,   for  the  purpose  of   enforcing  them  against  the  principal 
debtors.     (1  Story's  Eq.  Jur.,  §  499b.) 

Where  one  of  two  joint  debtors,  both  of  whom  are  principals, 
pays  a  joint  judgment,  the  judgment  becomes  extinguished,  what- 
ever may  have  been  the  intention  of  the  parties  to  the  transaction ; 
and  it  is  not  in  their  power,  by  any  arrangement  between  them,  to 
keep  the  judgment  on  foot  for  the  benefit  of  the  party  making  the 
payment.  (Harbeck  v.  Vanderbilt,  20  N.  Y.  395.)  The  remedy 
of  the  p?rty  thus  paying  is  by  an  action  against  his  codebtor  for 
contribution. 

But  a  different  rule  prevails  where  one  of  the  joint  judgment 
debtors  is  a  surety  upon  the  obligation  put  into  judgment.  Under 
the  civil  law,\a_  surety  paying  the  joint  obligation  is  entitled  not 
only  to  be  subrogated  to  all  the  securities  which  the  creditor  holds 
for  the  payment  of  the  debt,  but  he  is  entitled  to  be  substituted,  as 
to  the  very  debt  itself,  to  the  creditor,  by  way  of  cession  or  assign- 
ment. It  treats  the  transaction  between  the  surety  and  the  cred- 
itor, according  to  the  presumed  intention  of  the  parties,  to  be  not 
so  much  a  payment,  as  a  sale  of  the  debt.  (1  Story's  Eq.  Jur.,  § 
500;  1  Domat,  bk.  3,  tit.  1,  §  6,  art.  1.)  But  this  broad  rule  of  eq- 
uity has  not  been  fully  adopted  in  England.  There,  it  seems  to  be 
the  general  rule,  that  a  payment  of  a  joint  obligation  by  a  surety 
extinguishes  the  obligation  both  at  law  and  in  equity,  and  that  it 


SECURITIES    AND    REMEDIES  615 

can  not  be  kept  on  foot  for  his  benefit.  But  a  surety  thus  paying 
isJentitlcd  to  all  the  collateral  securities  held  by  the  creditor  for  the 
payment  of  the  debt.  (Copis  v.  Middleton,  1  Turn.  &  Russ.  224; 
T<eedv\  Norris,  2  Milne  &  Craig  361 ;  Hodgson  v.  Shaw,  3  Mylne 
&  Keene  183.)  It  is  there  held  that  the  surety  can  not  be  subro- 
gated to  the  very  obligation  paid,  because  it  does  not  survive  pay- 
ment, and  there  is  nothing  left  to  which  he  can  be  subrogated; 
and  that  he  can  be  subrogated  only  as  to  such  securities  and  rem- 
edies as  survive  the  payment  of  the  principal  obligation.  But 
it  has  not  always  been  easy  to  define  the  cases  in  which  subrogation 
could  be  had,  and  the  English  authorities  are  not  all  consistent.  _  It 
would  be  useless  to  criticize  and  attempt  to  reconcile  or  distinguish 
them. 

The  general  American  doctrine  in  favor  of  sureties  is  more  lib- 
eral than  that  of  the  English  courts ;  and  I  will  refer  to  only  a  few 
of  the  cases  decided  in  this  state.  In  Cuyler  v.  Ensworth  (6  Paige 
32),  four  persons  became  jointly  liable  in  the  official  bond  of  a 
county  treasurer,  who  afterward  misapplied  the  funds  of  the  county 
and  died  insolvent,  and  a  judgment  was  thereupon  recovered  against 
the  four  sureties  in  the  bond,  jointly,  and  three  of  them  afterward 
paid  the  whole  amount  of  the  debt  and  costs,  and  an  execution  was 
issued  upon  the  judgment  for  their  benefit,  on  which  the  sheriff  was 
directed  to  levy  one-fourth  of  the  amount  of  the  judgment  of  the 
property  of  their  cosurety,  which  execution  was  subsequently  re- 
turned unsatisfied ;  and  it  was  held  that  the  three  sureties  who  had 
paid  the  whole  debt  and  costs,  could  file  a  creditor's  bill  in  their 
own  names  against  their  cosurety  to  obtain  satisfaction  of  his 
ratable  proportion  of  the  judgment,  out  of  his  equitable  interests 
and  choses  in  action  which  could  not  be  reached  by  the  execution 
at  law.  The  broad  doctrine  is  laid  down  that  "the  surety,  by  the 
mere  payment  of  the  debt,  and  without  any  actual  "assignment  from 
tTfe^creditor  is,  in  equity,  subrogated  to  all  the  nghts  and  remedies ' 
of  the  creditor,  for  the  recovery  of  his  debt  against  the  principal 
debtor  or  his  property,  or  against  the  cosureties  or  their  property, 
to  the  extent  of  what  they  are  equitably  bound  to  contribute."  Al- 
though the  judgment  was  paid,  it  was  held  that  the  sureties  who 
paid  it  were  subrogated  to  all  the  remedies  which  the  creditor  had 
to  enforce  payment ;  and  yet  under  most  of  the  English  authorities, 
the  judgment  by  such  payment  would  have  been  held  to  be  extin- 
guished, so  that  there  could  have  been  no  subrogation  in  reference 
thereto.  In  Speiglemyer  v.  Crawford  (6  Paige  254)  there  was  a 
creditor's  bill  prosecuted  on  behalf  of  a  surety  against  the  princi- 
pal, founded  upon  a  decree  against  the  principal  and  surety  for  the 
payment  of  money;  and  the  chancellor  said:  "If  the  surety  had 
paid  the  decree,  he  would,  in  equity,  have  been  entitled  to  an  as- 
signment of  all  the  rights  and  remedies  of  the  complainant  to  com- 
pel payment  and  satisfaction  of  the  debt  and  costs  by  the  principal 
debtor.     He  would  also,  in  that  case,  have  been  permitted  to  file  a 


616 


SUBROGATION 


creditor's  bill  against  the  defendant  in  his  own  name,  founded  on 
such  original  decree,  to  obtain  satisfaction  out  of  her  property 
which  could  not  be  reached  by  the  execution  on  such  decree." 

If  A  executes  to  B  a  bond  for  the  payment  of  money  which  is 
guaranteed  by  C,  and  at  the  same  time  executes  a  mortgage  upon 
real  estate  to  secure  the  payment  of  the  same  sum,  and  C  is  com- 
pelled to  pay  the  bond,  he  is  entitled  to  be  subrogated  to  the  mort- 
gage and  enforce  it  for  his  indemnity.  (Mathews  v.  Aikin,  1  Comst. 
595.)  And  yet  the  payment  of  the  bond  also  pays  the  mortgage, 
and  the  mortgage  in  the  hands  of  the  mortgagee  is  absolutely  as 
much  extinguished  as  the  bond.  In  equity  however  the  mortgage  is 
kept  in  life,  just  as  it  was  before  payment,  for  the  benefit  of  the 
surety.  In  England,  the  surety,  in  such  a  case,  is  allowed  to  be 
subrogated  to  the  mortgage,  on  the  theory  that  the  mortgagee's 
estate  was  not  divested  by  payment  and  could  only  be  divested  by 
a  reconveyance  to  the  mortgagor,  and  hence  that  the  estate  sur- 
vived payment,  and  was  not  extinguished  thereby.  (Copis  v.  Mid- 
dleton,  supra.)  Here  subrogation  is  not  upon  that  theory,  as  the 
mortgagee  takes  no  estate  in  the  land,  and  the  lien  of  the  mortgage 
becomes  extinguished  by  payment.  But  the  subrogation  is  based 
upon  the  broad  doctrine  of  equity,  that  the  surety  upon  payment  is 
entitled  to  all  the  remedies  and  securities  which  the  creditor  held 
before  payment.  In  Lewis  v.  Palmer  (28  N.  Y.  271),  Wright,  J., 
laid  down  the  rule  thus  broadly :  "It  is  a  well-settled  principle, 
thatja  surety  who  pays  a  debt  for  his  principal  is  entitled  to  be  put 
in  the  place  of  the  creditor,  and  to  all  the  means  which  the  creditor 
possessed  to  enforce  payment  against  the  principal  debtor."1  In 
Clason  v.  Morris  (10  J.  R.  525),  Spencer,  J.,  said:  "That [a  surety 
who  pays  a  debt  for  his  principal,  has  a  right  to  be  put  in  tne  place 
of  the  creditor,  and  to  avail  himself  of  every  means  the  creditor 
had  to  enforce  payment  against  the  principal  debtor,  is  a  principle 
which  I  had  supposed  incontestable."  In  Goodyear  v.  Watson  (14 
Barb.  481),  the  rule  of  the  civil  law  was  adopted,  and  a  very  learned 
court  held  that  where  a  surety  paid  a  judgment  recovered  against 
himself  and  the  principal  debtor,  and  took  an  assignment  thereof 
for  his  own  benefit,  such  payment  did  not  extinguish  the  judgment ; 
but  that  after  the  death  of  the  principal,  payment  of  it,  according 
to  its  priority  of  date  out  of  the  assets  of  the  principal  debtor, 
might  be  decreed  by  the  surrogate ;  and  a  similar  decision  was  made 
in  the  case  of  Alden  v.  Clark  (11  How.  Pr.  209). 

These  citations  are  sufficient  to  show  what  the  rule  is  in  this  state ; 
and  I  will  now  proceed  to  apply  it  to  this  case. 

It  is  not  necessary  to  hold,  in  this  case,  as  many  authorities  in 
this  country,  as  well  as  the  civil  law,  would  warrant,  that  the  judg- 
ments paid  by  Townsend  survived,  so  as  to  be  the  subject  of  sub- 
rogation. If  the  judgments  were  completely  extinguished  by  the 
payment,  it  is  because  they  were  joint  judgments  against  the  prin- 


SECURITIES    AND    REMEDIES  617 

cipals  and  the  surety.  But  the  creditors  had  two  remedies ;  one 
upon  the  judgments,  and  another  upon  the  decree  which  could  be 
enforced  by  attachments;  and  these  two  may  be  treated  as  securi- 
ties for  the  payment  of  the  same  debt.  The  surety  was  not  a  party 
to  the  decree,  and  that  could  not  be  enforced  against  him.  The 
creditors  had  independent  remedies  upon  the  decree ;  and  when  the 
surety  paid  the  judgments,  he  took  the  place  of  the  creditors  as 
to  such  decree,  and  was  subrogated  thereto.  It  matters  not  that 
payment  of  the  judgments  also  paid  the  decree.  Payment  of  a  bond 
also  discharges  the  mortgage  collateral  thereto,  and  yet,  as  shown 
above,  the  mortgage,   for  the  purpose  of  subrogation,   survives. 

I  am,  therefore,  of  opinion  that  upon  the  payment  made  by  the 
surety,  he  became  subrogated  to  this  decree,  and  he  had  the  right 
to  have  the  same  assigned  to  himself  or  to  some  other  person  desig- 
nated by  him. 

~Tt  is  also  said  that  the  assignee,  Mrs.  Townsend,  can  not  enforce 
this  decree  in  her  own  name  by  attachment.  This  is  a  mere  tech- 
nical objection,  and  not  one  of  substance.  The  surety  could,  if 
necessary,  have  used  the  names  of  the  original  creditors  in  the  en- 
forcement of  the  decree.  Such  is  always  the  right  of  a  surety  in 
such  cases,  if  his  interests  require  it.  But  by  this  assignment  the 
whole  legal  title  to  the  decree  was  vested  in  the  assignee.  She  is 
entitled  to  the  moneys  due  thereon.  The  duty,  which  was  before 
due  from  the  administrators  to  the  original  creditors,  is  now  due 
to  her,  to  the  same  extent.  She  has  become  a  party  to  the  decree, 
and  can  invoke  every  remedy  for  its  enforcement.  Every  sale  of 
a  judgment,  decree,  or  other  obligation  carries  with  it  every  remedy 
which  the  law  gives  the  seller  to  enforce  payment.  The  remedy 
attaches  to  and  inheres  in  the  obligation,  and  does  not  pertain  to 
the  person  of  the  owner. 

Some  objection  is  made  to  the  regularity  of  the  proceedings  be- 
fore the  surrogate.  It  is  sufficient  to  say  that  no  such  objection 
was  made  before  the  surrogate,  and  that  by  the  order  of  the  Su- 
preme Court  the  proceeding  is  remitted  to  the  surrogate;  and  if 
he  did  not  before,  he  can,  upon  the  further  hearing  of  the  matter, 
conform  to  the  statute.  It  is  therefore  not  necessary  to  examine 
this  objection. 

The  order  of  the  Supreme  Court  must  be  affirmed,  with  costs. 

All  concur. 

Order  affirmed. 

Hill  v.  King,  48 JDhio  St.  75,  26  N.  E.  988 ;  Cottrell's  Appeal,  23  Pa.  St.  294 ; 
Bankers'  Surety  Co.  v.  Linder,  156  Iowa  486,  137  N.  W.  496. 

A  surety  paying  taxes  for  his  principal  is  entitled  to  be  subrogated  to  the 
state's  right  to  be  preferred  in  the  distribution  of  the  principal's  assets.  Orem 
v.  Wrightson,  51  Md.  34,  34  Am.  Rep.  286. 

A  surety  may  be  subrogated  to  the  right  of  a  creditor  to  have  a  transfer  of 
property  made  by  the  debtor  set  aside  as  being  made  fraudulently.  Dudley  v. 
Buckley,  68  W.  Va.  630,  70  S.  E.  376;  Keel  v.  Larkin,  72  Ala.  493. 


618 


1    SUBROGATION 


SECTION  5.    SUBROGATION   BETWEEN   COSURETIES 
SANDERS  v.  WEELBURG,  EXECUTRIX 


V 


107  hid.  266,  7  N.  E.  573   (1886). 


Howk,   C.  J. :     Appellant  shows  in  his  complaint,   as  we  have 
seen,  that  he  and  the  appellee   were  cosureties   of   one   Frederick 


Weelburg,  as  principal  debtor,  in  a  certain  judgment  rendered 
against  all  of  them,  on  January  29,  1879,  in  and  by  the  superior 
.court  of  Marion  county;  that  on  April  9,  1879,  appellant  paid  the 
balance  then  due  of  such  judgment,  interest  and  costs,  to  wit,  the 
sum  of  $1,811.50;  that  on  the  next  day,  April  10,  1879,  an  execu- 
tion was  issued  on  such  judgment  in  favor  of  appellant,  as  such 
cosurety,  and  delivered  to  the  sheriff  of  Marion  county;  that  by 
virtue  of  such  execution,  such  sheriff  offered  and  sold  to  appellant 
certain  property  of  the  principal  debtor,  on  April  26,  1879,  for 
$378,  and,  on  May  31,  1879,  certain  real  estate  and  leasehold  inter-j 

i  ests  of  such  principal  debtor,  for  $50,  and  on  July  14,  1879,  cer-j 
tain  personal  property  of  the  principal  in  such  judgment,  for  $28.29  c 
and  that  on  April  2,  1880,  such  execution  was  returned,  no  other 
property  found  of  Frederick  Weelburg,  principal  in  such  judge- 
ment, whereon  to  levy.     On   such  several   sales  to  appellant,  hi§ 

-  complaint  shows  that  he  paid  the  costs  and  credited  the  remainder 
of  his  several  bids  on  the  judgment. 

After  his  several  purchases  of  the  property  of  Frederick  Weel- 
burg, principal  in  such  judgment,  and  after  he  had  credited  the 
judgment  with  the  net  amounts  of  his  several  bids  for  such  prop- 
erty, as  stated  in  his  complaint,  appellant  filed  his  claim  herein  to 
recover  of  the  appellee,  as  his  cosurety  in  such  judgment,  by  way  of 
contribution,  the  sum  of  $700  and  interest  thereon  at  the  rate  of 
eight  per  cent,  per  annum  from  and  after  March  13,  1879.  It  is 
claimed  on  behalf  of  the  appellant,  that  he  purchased  the  property 
of  the  principal  in  the  judgment  at  public  sales  thereof  by  the  sher- 
iff of  the  county,  where  all  parties,  the  appellee  included,  had  the 

.  •  right  to  appear  and  bid  therefor;  that  he  had  the  lawful  right  to. 
purchase  such  property,  at  such  sales,  and  as  no  one  would  nor  did! 
bid  more  therefor  than  he,  to  purchase  the  same  at  and  for  the, 
amounts  of  his  several  bids,  without  regard  to  the  actual  value 
thereof;  and  that,  having  so  purchased  such  property,  he  can  not 
be  required  to  account  therefor  even  to  the  appellee,  as  his  cosurety, 
at  its  actual  value,  or  at  any  greater  value  than  the  aggregate 
amount  of  his  several  bids. 

On  the  other  hand,  it  is  claimed  on  behalf  of  appellee  that,  as 
she  was  the  cosurety  of  appellant  in  such  judgment,  equity,  good 
conscience,  andvjfair  dealing  exacted  of  him  the  utmost  good  faith 


. 


BETWEEN    COSURETIES 


619 


in  hisjiransactions  with  her  in  relation  to  the  judgment,  and  in 
connection  with  the  property  of  the  principal  in  such  judgment ;  that  + 
as  the  judgment  was  a  common  burden  to  her  and  appellant,  as  such 
cosureties,  so  the  property  of  the  principal  in  the  judgment  became 
and  was  a  common  fund  for  the  benefit  and  protection  alike  of  each 
and  both  of  them;  that  by  suing  out  and  delivering  to  the  sheriff 
of  the  county  an  execution  on  such  judgment,  in  appellant's  favor, 
he  acquired  a  security  for  the  payment  of  the  judgment,  by  the  lien 
of  the  execution  on  the  property  of  the  principal  therein,  which  se-  f 
curity  inured  to  the  benefit  and  for  the  protection  of  the  appellee, 
as  his  cosurety;  that  by  appellant's  acts  in  procuring  forced  sales 
of  such  property  of  the  principal  in  the  judgment,  and  in  becoming 
the  purchaser  thereof  at  prices  relatively  nominal,/thevalue  of  such 
security  _ber^rnp  and  was  largely  depreciated,  if HioT  wholly  lost^ 
and  thatTby  means  of  the  premises,  appellant  became  and  was 
justly  chargeable  with  the  fair  and  reasonable  value  of  such  secur- 
ity to  the  appellee,  as  his  cosurety,  in  the  equitable  adjustment  of 
appellant's  claim  herein  to  contribution. 

^Pfrus^ conflictingTTaims  of  the  parties  respectively  involve,  as  it 
seems  to  us,  the  entire  merits  of  the  controversy  in  this  cause.  If 
appellant  is  right  in  his  claim  or  contention,  as  we  have  heretofore 
stated  it,  the  general  verdict  for  appellee  is  wrong,  and  the  judg- 
ment thereon  can  not  stand,  but  must  be  reversed,  because  the  rec- 
ord before  us  clearly  shows  that  the  case  was  tried  below  upon  a 
theory  which  antagonizes  and  is  irreconcilable  with  appellant's 
claim  or  contention.  If,  on  the  other  hand,  appellee's  claim  or  con- 
tention, as  it  is  heretofore  stated,  is  the  correct  one,  as  we  think 
it  is,  the  general  verdict  is  right  upon  the  evidence,  and  the  judg- 
ment below  must  be  affirmed.  It  is  abundantly  shown  by  the  evi- 
dence in  the  record,  that  the  fair  and  reasonable  value  of  the  prop- 
erty of  the  principal  in  the  judgment,  which  was  levied  upon  and 
sold  by  the  sheriff  upon  the  execution  in  favor  of  appellant,  and 
of  which  he  became  the  purchaser  as  aforesaid,  largely  exceeded  / 
in  the  aggregate  the  full  amount  due  him  on  such  judgment,  of  prin- 
cipal, interest,  and  costs. 

Appellant,  having  fully  paid  and  satisfied  the  judgment  to  the 
jucTgrn^hTcYeditor  or  "plaintiff,  by  means  of  such  payment,  acquired 
at  the  time  a  cause  of  action  against  the  appellee,  as  his  cosurety  in 
such  judgment ;  but  in  his  suit  on  such  cause  of  action,  it  is  clear, 
we  think,  that  under  our  law  he  could  not  recover  of  the  appellee 
any  more  than  she  was  "equitably  bound  to  pay."  Prima  facie, 
appellee  as  the  cosurety  of  appellant  was  liable  to  him  for  the  one- 
half  of  the  sum  paid  by  him  to  the  judgment  plaintiff,  in  satisfaction 
of  such  judgment;  but  this  prima  facie  liability  was  subject  to  re- 
duction by  whatever  sums  could  be  realized  from  the  property  of  the 
principal  in  such  judgment.     The  property  of  the  principal  in  the 

judgment  was  a  common  fund  for  the  benefit  and  protection  of  both 

/        L.    . /    j 


620 


SUBROGATION 


the  sureties  alike,  the  appellee  as  well  as  the  appellant.  By  his  pay- 
ment of  the  judgment  to  the  judgment  plaintiff,  appellant  became 
and  was  practically,  at  least,  the  owner  thereof,  and  was  fully 
authorized  to  sue  out  execution  thereon  for  his  own  use,  under  the 
provisions  of  section  1214,  R.  S.  1881.  The  judgment  was  then  a 
lien  on  the  real  estate  and  chattels  real  of  the  principal  therein ;  and 
'  when,  on  the  next  day  after  his  payment  of  such  judgment,  appel- 
lant sued  out  an  execution  thereon,  in  his  own  favor,  and  delivered 
the  same  to  the  sheriff  of  the  county,  he  thereby  acquired  a  valid 
lien  on  all  the  personal  property  of  such  principal.  These  liens  upon 
the  real  and  personal  property  of  the  principal  in  the  judgment  were 
a  security  which  appellant  had  acquired  and  held  as  aforesaid ;  but 
such  security  innured  in  equity  to  the  benefit  and  for  the  protection 
o|~the  appellee,  as  the  cosurety  of  the  appellant  in  such  judgment. 

In  Sheldon  on  Subrogation,  section  143,  the  law  on  the  subject 
mder  consideration  is  thus  stated:  'jWhen  one  of  two  or  more  co- 
sureties obtains  in  any  manner  a  security  for  the  payment  of  the 
debt,  he  does  this  for  the  benefit  of  all  the  sureties ;  he  is  a  trustee 
for  his  cosureties  as  to  such  security,  and  is  held  for  them  to  the 
duties  which  arise  from  that  relation,  and  must  do  no  act,  or  vol- 
untarily omit  to  do  any  act,  by  which  such  security  will  be  depreci- 
ated or  lost,  but  must  faithfully  apply  it  to  the  payment  of  the  debt; 
or  he  will  be  chargeable  to  his  cosureties  with  the  amount  ofthe  se- 
curity, in  the  adjustment  of  their  proportions  of  the  debt/'t  The 
language  quoted  and  the  doctrine  declared  are  fully  supported  by 
the  numerous  authorities  cited  in  the  footnotes  by  the  learned  au- 
thor. The  court  here  discussed  Hall  v.  Robinson,  8  Ired.  56 ;  Owen, 
v.  McGehee,  61  Ala.  440;  Schmidt  v.  Coulter,  6  Minn.  492;  and 
Comegys  v.  State  Bank,  6  Ind.  357. 

JYVhere  one  surety  obtains  a  security,  it  inures  at  once  to  the  bene- 
fit alike  of  himself  and  his  cosurety.  He  can  not  deal  with  such  se- 
curity to  his  own  advantage,  and  to  the  prejudice  of  his  cosurety, 
without  consulting  the  latter  and  without  his  assent.  He  occupies 
the  position  of  a  trustee  for  his  cosurety,  and  can  not  deal  with  the 
fund  to  the  prejudice  of  the  latter,  without  his  authority  or  consent.  I 
In  such  case,  where  the  surety  has  it  in  his  power,  for  his  own  ad- 
vantage, to  sacrifice  the  common  fund  which,  in  good  conscience, 
he  is  bound  to  protect,  the  general  doctrine  is  that  he  will  not  be 
permitted  to  avail  himself  of  any  such  advantage  to  his  own  profit, 
and  to  the  loss  and  detriment  of  his  cosurety. 

We  do  not  decide,  in  this  case,  that  appellant  did  not  have  the 
right  to  sue  out  execution  on  the  judgment  and  procure  the  sale  by 
the  sheriff  of  the  principal's  property ;  for  this  right  he  clearly  had. 
What  we  do  decide  is  that  if  the  appellant,  at  such  sales,  purchased 
the  property  of  the  principal,  at  comparatively  nominal  prices,  and 
then  sued  his  cosurety  for  contribution,  she  had  the  right,  in  bar  of 


i! 


BETWEEN    COSURETIES  621 

such  suit,  to  show,  as  she  did,  that  such  property,  at  its  fair  value, 
was  more  than  sufficient  to  satisfy  such  judgment. 
"~t3ur""conclusion  is  that  the  court  committed  no  available  error  in 
overruling  appellant's  motion  for  a  new  trial  of  this  cause. 
The  judgment  is  affirmed,  with  costs. 


LEGGETT  v.  McCLELLAND  -^ 

s  ft  £>    < 

39  Ohio  St.  624  (1884). 

Johnson,  C.  J. :  The  facts  briefly  stated  are,  that  William  Leg- 
g^_ajid_Eichar-d-  McClelland  as  cosureties  of  George  P.  Craig,  on 
his  bond  as  township  Jreasurer,  were  compelled  to  pay  some  $300 
each,  to  make  good  the  default  of  their  principal.  Craig's  wife  had 
executed  to  McClelland  an  indemnity  mortgage  on  her  separate 
property,  to  save  him  harmless  as  a  surety  of  her  husband.  This 
mortgage  was  for  his  sole  and  exclusive  benefit.  In  order  to  do  this, 
and  as  necessary  to  its  legality,  her  husband  joined  in  its  execution. 
Subsequently  to  the  payment  by  the  cosureties,  McClelland,  in  pro- 
ceedings to  foreclose,  was  reimbursed  out  of  the  proceeds  of  the  sale 
of  the  wife's  lands  thus  mortgaged.  The  administrator  of  William 
Leggett  now  sues  to  recover  one-half  the  amount  received  from  this 
indemnity.   Both  husband  and  wife  are  still  living. 

The  common  pleas  decided  that  upon  this  state  of  fact,  the  plaintiff 
could  not  recover,  and  this  judgment  was  on  error  to  the  district 
court  affirmed. 

It  is  now  sought  to  reverse  these  judgments  on  the  ground  that . 
this  indemnity  inures  to  the  equal  benefit  of  both  sureties.    This  is 
resisted.    It  is  claimed  that  the  rule  of  equality  of  right  to  an  indem- 
nity fund  applies  only  when  it  comes  from  the  principal,  and  that  as 
this  mortgage  was  upon  the  separate  property  of  the  wife,  and  was    ' 
given  for  the  sole  and  exclusive  benefit  of  defendant,  it  does  not  j 
come  within  the  general  rule  applicable  where  the  indemnity  is  out  of 
the  estate  of  the  principal. 

Where  a  principal  debtor  indemnifies  one  or  more  sureties,  his 
creditor  may,  in  equity,  be  subrogated  to  the  debtor's  right  to  the 
same  to  justify  his  claim  after  exhausting  his  legal  remedies,  so  on 
the  same  principles  of  justice  or  natural  equity,  all  the  cosureties^ 
are  entitled  to  share  equally  in  such  indemnity.  /Each  has  an  equal 
equity  in  the  fund  provided  by  the  principal.  This  right  to  subroga- 
tionb}Tthe  creditor,  or  contribution  by  cosureties  is  not  founded  y 
on  contract,  but  grows  out  of  the  natural  equity  of  the  case.  The 
property  of  the  principal  is  bound  for  his  debts.  His  obligation  to 
his  sureties  are  equal,  therefore  indemnity  to  one,  coming  from  him, 
is  indemnity  for  all.    Oldham  v.  Broom,  28  Ohio  St.  41 ;  Dering  v. 


622 


SUBROGATION" 


Winchelsea,  1  Lead.  Cas.  in  Eq.  (103)  and  notes;  Brandt  on  Sure- 
tyship, 223  ;  Gaster  v.  Waggoner,  26  Ohio  St.  450.  - 

This  rule  of  equality  is  subject  to  be  varied  by  agreement  among 
the  parties. 

In  Dering  v.  Earl  of  Winchelsea;  1  Lead.  Cas.  in  Eq.  (103),  Lord 
Ch.  Baron  Eyre  says :  "That  contribution  is  bottomed  and  fixed  on 
general  principles  of  justice,  and  does  not  spring  from  contract, 
though  contract  may  qualify  it." 

See  notes  to  above  case,  p.  171,  4th  edition. 

An  instance  of  such  qualification  is  found  in  Moore  v.  Moore,  4 
Hawkes  (N.  C),  15  Am.  Dec.  523,  where  one  cosurety,  in  consider- 
ation of  his  becoming  such,  stipulated  for  and  received,  with  the 
consent  of  his  cosureties,  separate  indemnity  from  the  principal.  It 
was  held  that  the  cosureties  could  only  share  in  the  surplus  after 
such  surety  had  been  fully  indemnified.  Such  indemnity  was  not  in 
fraud  of  the  rights  of  cosureties. 

The  general  rule,  however,  is  as  stated,  and  the  reason  on  which 
it  rests  is,  that |  one  who  takes  indemnity  from  the  principal  is,  in 
equity,  a  trustee  for  all  who  are  equally  bound. 

As  the  taking  of  such  indemnity  from  the  principal  lessens  his  lia- 
bility to  pay,  it  would  be  a  fraud  on  his  cosureties  to  allow  him  to 
convert  it  to  his  sole  use  in  the  absence  of  their  consent.  As  trustee 
for  his  cosureties,  he  is  bound  to  such  discreet  and  reasonable  use 
;of  the  securities  as  would  be  required  from  a  trustee.  Carpenter  v. 
Kelley,  9  Ohio  10&..; 

So  [if  the  debtor  give  his  surety  indemnity  the  creditor  may  avail 
himself  of  it  by  subrogation,  though  in  the  first  instance  it  was  un- 
known  to  him.  Hopewell  v.  Bank,  10  Leigh  206,  221 ;  McCullom  v. 
Hinckley,  9  Vt.  143. 

The  creditor's  right  of  subrogation  rests  upon  the  same  principle 
of  natural  equity  as  that  of  cosureties  to  share  in  the  indemnity. 
The  property  of  the  principal  belongs  to  the  creditor,  and  he,  after 
exhausting  his  remedy  at  law,  may  subject  it  in  the  hands  of  the 
surety  to  the  satisfaction  of  his  debt.  The  holder  of  such  indemnity 
is  a  trustee  for  the  creditor.  So  also  is  he  a  trustee  for  his  cosure- 
ties. 

This  indemnity  was  not  furnished  by  the  principal.  It  was  the 
separate  estate  of  his  wife  and  not  liable  for  his  debts.  The  wife, 
for  reasons  satisfactory  to  herself,  mortgaged  her  separate  property 
for  the  sole  and  exclusive  benefit  of  defendant.  It  was  no  fraud 
upon  the  creditor  or  the  cosurety  to  indemnify  one  surety.  As  it 
was  not  the  property  of  the  principal,  no  trust  arose,  either  in  favor 
of  the  creditor  or  of  the  cosureties,  in  the  absence  of  any  showing 
that  the  bond  was  accepted,  or  that  the  cosureties  signed  on  the 
faith  of  such  indemnity. 

The  indemnity  was  to  save  McClelland  harmless  as  surety.     He 


BETWEEN    COSURETIES  623 

,  cS>  A 

has  been  fully  reimbursed  out  of  the  wife's  separate  estate,  thus 
fulfilling  the  terms  of  the  wife's  contract. 

To  compel  him  now  to  contribute  one-half  of  this  fund  to  the  co- 
surety, would  violate  the  contract  she  made.  As  she  was  under  no 
obligation  to  pay  the  debt,  and  as  her  husband  had  no  interest  in  the 
property  liable  to  be  taken  to  satisfy  the  claim,  neither  the  creditor 
nor  the  cosureties  had  any  right,  in  equity,  to  treat  defendant  as 
trustee  for  them. 

It  is  claimed  however,  that  it  was  a  joint  mortgage  of  husband  and 
wife,  and  conveyed  his  contingent  estate  by  the  curtesy,  and  to  that 
extent,  at  least,  was  an  indemnity  by  the  principal. 

It  is  enough  to  say,  that  under  the  existing  statutes,  the  separate 
property  of  the  wife  belongs  to  her,  and  with  all  its  issues,  rents 
and  profits,  is  under  her  sole  control,  that  the  husband,  during  cover-  -' 
ture,  has  no  estate  or  interest  in  the  same  liable  at  law  or  in  equity 
for  his  debts  or  to  his  incumbrance,  and  the  only  estate  of  curtesy 
left  to  him  is  as  surviving  husband  in  the  real  estate  of  which  she 
died  the  owner. 

As  this  land  has  been  sold,  during  coverture,  his  curtesy  expectant, 
if  there  be  such  a  contingent  estate,  is  gone,  and  at  her  death  no  right, 
to  curtesy  would  survive  to  her  husband. 

The  statute  relating  to  the  acknowledgment  of  deeds  and  other 
instrument,  required  he  should  join  with  his  wife  in  the  execution 
of  this  mortgage.  It  was  a  legal  necessity  that  he  should  do  so  to 
make  it  a  valid  mortgage,  but  in  so  doing  he  furnished  no  part  of  the 
indemnity.  The  fund  therefore  did  not  arise  even  in  part  from  the 
principal,  and  hence  the  general  rule  that  when  a  principal  indemni- 
fies one  surety  it  inures  to  the  benefit  of  his  cosureties,  does  not 
apply. 

Judgment  affirmed. 

In  the  case  of  Assets  Realization  Co.  v.  American  Bonding  Co.,  88  Ohio  St. 
216,  102  N.  E.  719,  Ann.  Cas.  191SA,  1194n   (1913),  the  court  says:    "Where 
several  surety  companies  are  bound  by  separate  instruments  on  account  of 
the   same   principal,   and   each   company,   by   its   bond,   limits    its   liability,    in 
the  event  of  default  on  the  part  of  the  principal,  to  such  proportion  of  the 
total  loss  sustained  by  the  obligee  as  the  penalty  named  in  its  bond  bears  to  f 
the  total  amount  of  the  bonds  furnished  by  the  principal  to  the  obligee,  the  I 
suretyship   of  each  company  is   a  separate   and   distinct  transaction   and   the  \ 
relation  of  cosuretyship  among  them  does  not  arise,  nor  does  the  right  of  J 
contribution  exist. 

"Where,  in  such  case,  collateral  or  securities  are  placed  by  the  principal  in 
the  hands  of  one  of  the  companies  to  indemnify  it  against  any  loss  it  might 
incur  by  reason  of  its  obligation  on  its  bond,  none  of  the  other  companies,  in 
the  event  of  the  default  of  the  principal,  is  entitled  to  any  part  of  such  col- 
lateral or  securities  to  indemnify  it  against  a  loss  incurred  on  account  of  its 
bond." 


624 


SUBROGATION 


SECTION    6.    SUBROGATION    BETWEEN    SUCCESSIVE 

SURETIES 


*' 


P 


v< 


BRANDENBURG  v.  FLYNN'S  ADMINISTRATOR. 

51  Ky.  397  (1851). 

•  •   • 

Judge  Marshall  delivered  the  opinion  of  the  court. 

An  execution  in  favor  of  David  Brandenburg  against  O.  Tracy 
having  been  replevied  by  Tracy,  with  Hulse  and  Joseph  Branden- 
burg as  his  sureties,  was  afterward  enjoined  by  Tracy  on  a  bill  in 
equity,  in  which  he  made  his  two  replevin  sureties  defendants.  M^ 
Flynn  was  the  surety  in  the  injunction  bond.     rhe_jn  junction  was 


. 


dissolved  with  damages,  and  Tracy  in  the  meantime  having 
insolvent  and  conveyed  his  property  to  be  applied  to  payment  of 
his  debts,  M.  Fh/mi  or  his  administrator  was  compelled  topay_the_ 
judgment  on  the  injunction  bond,  including  the  amount  dueon  the 
replevy  bond  with  COsfs^nd^Samages^  The  present  biIT~fiIed  by 
Flynn's  administrator,  seeks  to  make  the  sureties  in  the  replevy 
bond,  of  whom  Joseph  Brandenburg  alone  is  now  solvent,  reim- 
burse lTrfn7~oT~coiitribute  to  his  reimbursement,  for  the"  payment 
thus  made.  The  bill  also  alleges  that  the  executors  of  David 
Brandenburg,  the  original  creditor,  had  received  more  than  $100 
under  a  decree  distributing  the  proceeds  of  Tracy's  property  con- 
veyed as  above  mentioned,  and  that  said  sum  should  go,  or  should 
have  gone,  to  the  credit  of  the  debt  on  the  replevy  bond ;  and  he 
prays  a  decree  for  the  amount  against  said  executors  who  are  made 
■  parties.  It  appears,  however,  that  within  two  months  after  the 
bill  was  filed,  and  before  the  executors  were  served  with  process 
the  sum  referred  to  which  had  not  actually  come  to  the  hands  of 
the  executors,  but  had  been  received  by  another  for  them,  was  paid 
to  the  complainant  and  it  does  not  appear  that  it  ever  was  refused. 

Before  the  injunction  was  obtained  by  Tracy  an  execution  on 
the  replevy  bond  had  been  levied  on  his  land  and  other  property, 
the  sale  of  which  was  directed  by  the  creditor  to  be  postponed  until 
further  orders,  and  in  two  months  afterward,  and  before  a  sale 
was  made,  the  execution  was  stayed  by  the  injunction.  It  was 
agreed  as  a  fact  in  this  case,  that  at  the  date  of  the  injunction 
Tracy's  property  was  sufficient  to  pay  the  debt. 

On  the  hearing,  the  court  decreed  that  Joseph  Brandenburg 
should  pay  to  the  complainant  $74  with  interest,  and  the  costs  of 
the  suit,  and  there  was  no  decree  against  Hulse.  To  reverse  this 
decree,  Joseph  Brandenburg  prosecutes  a  writ  of  error,  claiming 
that  the  bill  should  have  been  dismissed  as  to  him,  and  the  com- 
plainant by  cross-error  complains  that  the  decree  is  erroneous  in 
not  fully  reimbursing  his  payment  of  the  replevy  bond,  etc.,  and 


^'6 


BETWEEN    SUCCESSIVE    SURETIES 


625 


also  in  not  decreeing  costs  against  the  executors  of  David  Branden- 
burg. 

The  complainant's  claim  seems  to  be  based  upon  a  wrong  applica- 
tion or  improper  extension  of  the  principle  that  when  a  surety  pays  , 
the  debt  he  is  entitled  to  the  benefit  of  such  securities  for  it  as  the 
creditor  held,  or  else  upon  the  principle  that  the  surety  in  the  in- 
junction bond  was  substantially  but  a  cosurety  with  the  sureties 
in  the  replevin  bond  which  was  enjoined  and  entitled  to  contribu- 
tion from  them,  or  upon  the  idea  that  the  injunction  surety  was 
the  surety  not  only  of  principal  but  also  of  the  sureties  in  the  re- 
plevy bond.  The  decree  was  probably  founded  upon  the  idea  that, 
fall  being  substantially  sureties  for  the  same  debt,  all  should  be  re- 
garded as  cosureties,  and  therefore  that  any  one  who,  by  the  in-  - 
solvency  of  the  principal,  has  been  compelled  to  pay,  may  require 
the  others,  or  such  as  are  solvent,  to  contribute  so  as  to  equalize 
the  loss. 

It  is  not  even  alleged  that  Flynn  became  bound  in  the  injunc- 
tion bond  at  the  request  of  either  of  the  sureties  in  the  replevy 
bond,  or  that  the  injunction  was  obtained  at  their  instance  or  with 
their  assent.     And  it  is  certain  that  it  operated  to  their  injury  by 
prolonging  their  responsibility,  and  subjecting  them  to  hazard  from 
which  they  would  otherwise  have  been  relieved  by  the  sale  of  the 
property  of  their  principal,  then  under  levy  for  the  purpose.    There 
isno^pretense  for  saying  that  Flynn  was  surety  for  them.     And  al- 
THough  he  made  himself  conditionally  responsible  for  the  same  debt 
for  which  they  were  bound,  yet  as  his  obligation  is  conditional, 
while  theirs  is  direct,  as  his  obligation  is  more  extensive  than  theirs, 
as  it  was  entered  into  not  only  after  the  date  of  theirs  but  obviously 
in  aid  of  the  principal  alone,  for  a  purpose  in  which  they  did  not  1 
concur,  and  with  the  probable  effect  of  injury  to  them,  he  can  not, 
as  we  think,  be  regarded  in  any  just  sense  as  a  cosurety  with  them. 
It  is  for  the  purpose  of  doing  equity  that  the  chancellor  regards  all 
persons  who  are  bound,  though  by  different  instruments  executed 
at  different  times,  for  the  same  debt  or  duty  of  the  same  individ-  _. 
uals,  as  cosureties  bound  to  contribute  to  any  loss  which  either  may 
sustain.     The  facts  of  this  case  prove  that  the  application  of  the 
principle  here  would  be  inequitable.     But  the  particular   facts  of 
this  case  are  not  necessary  to  take  it  out  of  a  rule  which  might 
otherwise  embrace  it.    We  know  of  no  case  in  which,  on  the  ground 
either  of  contribution  among  cosureties  or  of  substitution  to  the 
securities  of  the  creditor,  a  subsequent  surety  coming  in  aid  of  the 
debtor  alone,  without  the  request  or  concurrence  of.  the   original 
sureties,  and  in  the  regular  course  of  the  remedy  for  coercing  the 
debt  from  him  alone,  or  for  the  purpose  of  obstructing  its  collection 
by  his  own  separate  proceeding  and  for  his  own  benefit,  has  ob- 
40— De  Witt. 


626 


SUBROGATION 


tained  in  equity  either  partial  or  full  reimbursement  from  the  prior 
sureties. 

On  the  contrary,  the  doctrine  established  by  the  adjudged  cases, 
and  as  we  think  in  conformity  with  the  true  principles  of  equity,  is 
that,  jif  under  such  circumstances  the  prior  surety  is  compelled  to 

1  pay  the  debts,- he  thereby  becomes  entitled  by  substitution  to  the 
rights  of  the  creditor  against  the  subsequent  surety  to  the  whole  ex- 
tent of  the  payment  made  and  of  the  obligation  of  the  subsequent 
surety;  which  precludes  all  right  on  the  part  of  the  subsequent 
surety,  should  the  debts  be  coerced  from  him,  to  claim  reimburse- 
ment from  the  prior  surety.  The  cases  of  Parsons  v.  Briddock  (2 
Vernon  603)  ;  Patterson  v.  Pope  (5  Dana  244)  ;  Kouns  v.  Bank  of 
Kentucky  (2  B.  Monroe  305)  ;  Bohannon  y.  Combs  (12  B.  Mon- 
roe), and  other  cases,  establish  or  recognize  the  doctrine  above 
stated,  and  sufficiently  illustrate  the  principles  on  which  it  rests, 
and  its  applicability  to  the  present  case.  We  content  ourselves, 
therefore,  with  the  conclusion  that  on  principle  and  on  the  authority 
of  the  cases  referred  to,  the  complainant  was  entitled  to  nothing 
against  either  of  the  sureties  in  the  replevy  bond,  but  the  bill  as  to 

I  them  should  have  been  dismissed.  And,  as  there  appears  to  have 
been  no  necessity  for  bringing  the  executors  of  David  Brandenburg 
before  the  court  for  the  purpose  of  compelling  payment  of  the  sum 
received  from  the  assets  of  Tracy  on  account  of  this  debt,  and 
which  the  complainant  received  before  service  of  process,  the  cross- 
errors  assigned  by  Flynn's  administrator  are  wholly  unavailable. 
Wherefore,  on  the  writ  of  error  of  Joseph  Brandenburg,  the  de- 
cree is  reversed,  and  the  cause  remanded,  with  directions  to  dis- 
miss the  bill  with  costs. 


W 


DENT  v.  WAIT'S  ADMR. 

9  W.  Va.  41  (1876). 


Edminston,  J. :  This  is  an  appeal  from  a  decree  of  the  circuit 
court  of  Wood  county.  George  Dent  filed  his  bill  against  one  Rob- 
ert Crichton,  S.  S.  Cook,  administrator  of  Walton  Wait,  deceased, 
and  the  Second  National  Bank  of  Parkersburg:  HTnsbill  he  al- 
leges that  the  Second  National  Bank  of  Parkersburg,  at  the  spring 
term,  1872,  of  the  circuit  court  of  Wood  county,  obtained  a  judg- 
ment against  Crichton  and  Wait  for  the  sum  of  $256.70,  with  in- 
terest thereon  from  the  6th  day  of  September,  1871,  till  paid,  and 
$17.15  costs,- and  files  an  abstract  of  said  judgment  as  part  of  his 
bill.  This  abstract  simply  shows  that  a  judgment  in  favor  of  the 
bank  was  rendered  against  Crichton  and  Wait  for  the  sum  alleged 
in  the  bill.  The  bill  then  alleges  that  Wait  departed  this  life  dur- 
ing the  said  term  of  court  at  which  said  judgment  was  rendered; 


)  A 

BETWEEN    SUCCESSIVE    SURETIES  627 

that  execution  on  said  judgment  was  sued  out  against  Crichton 
which  went  into  the  hands  of  the  sheriff  and  was  levied  upon  the 
property  of  Crichton,  and  that  Crichton  gave  a  forthcoming  under- 
taking with  the  complainant  Dent  as  his  security,  by  which  they 
bound  themselves. to  pay  the  sum  of  $350,  in  the  event  that  said 
Crichton  failed  to  deliver  to  the  sheriff  the  property  levied  upon, 
on_the  day  o"t__sa_le;'  that  the  property  was  not  delivered,  and  that 
such  proceedings  were  had  that  a  judgment  was  rendered  on  said 
forfeited  undertaking  for  the  sum  of  $350,  the  penalty,  but  to  be 
discharged  by  the  payment  of  $299.50,  with  interest  thereon  from 
the  date  of  the  bond  and  costs.  He  then  charges  that  execution 7 
issued-en  this  judgment  and  he  was  compelled  to  pay  and  discharge 
the-same,  said  Crichton  having  become  insolvent.  It  is  then  al-  '■* 
leged  that  it  will  appear  by  the  abstract  of  said  judgment  filed  that 
said  judgment  was  the  joint  debt  of  said  Crichton  and  Wait; 
that  the  plaintiff  by  signing  said  undertaking  became  security  f  or 
the  original  debt  ;  and  that  by  reason  of  his  having  paid  off  and  dis- 
charged said  execution  to  the  said  bank,  he  is  entitled  to  be  substi- 
tuted to  all  the  rights  of  said  bank  against  the  said  Crichton  and  the 
estate  of  said  Wait,  subsisting  at  the  time  he  became  bound  for  the 
payment  of  said  debt;  and  that  he  is  entitled  to  a  decree  against. 
Crichton  and  the  estate  of  Wait  for  the  amount  of  the  said  original 
judgment  with  interest  and  costs. 

Cook,  the  administrator  of  Wait,  files  his  answer  and  claims  that 
the  debt  on  which  said  judgment  was  founded  was  not  the  joint 
debt  of  Crichton  and  Wait,  and  shows  by  filing  the  original  note 
on  which  the  judgment  was  founded,  that  it  was  a  negotiable  prom- 
issory note  executed  by  Crichton  to  Wait  for  an  amount  alleged  to 
be  due  from  Crichton  to  Wait;  that  Wait  indorsed  said  note  to 
theljank  and  drew  the  value  thereof  from  the  bank ;  that  the  note 
being. ^dishonored  was  protested  for  nonpayment,  and,  under  the 
act  of  assembly,  a  joint  judgment  was  obtained  thereon,  and  this 
isjjie  judgment  exhibited  in  the  plaintiff's  bill. 

I  might  remark  here  that  the  allegations  in  the  bill  that  it  was 
the  joint  debt  of  the  said  Crichton  and  Wait,  is,  to  say  the  least, 
under  the  circumstances  disclosed  in  the  cause,  rather  too  gen- 
eral. It  should  have  shown  more  clearly  the  nature  of  the  obliga- 
tion on  which  the  judgment  was  founded  and  the  true  relation  that 
the  parties  thereto  sustained  to  each  other,  that  the  court  could  have 
seen  more  satisfactorily  what  the  obligations  of  the  parties  were, 
and  what  the  right  of  the  plaintiff  would  be  under  the  facts  and  cir- 
cumstances of  the  case.  But  the  pleader  left  the  true  facts  to  be 
developed  by  the  defendant.  This  the  defendant  has  done,  as  above 
stated,  by  filing  the  original  note,  protest  and  declaration,  as  an  ex- 
hibit with  his  answer. 

The  cause  came  on  to  be  heard  upon  the  bill  taken  for  confessed 
as  to  Crichton  and  the  bank,  answer  of  Cook,  administrator,  rep- 


628 


SUBROGATION 


lication  thereto,  and  the  exhibits  filed  in  the  cause.  The  note,  pro- 
test and  declaration,  filed  as  an  exhibit  with  the  answer,  agree  in 
amount,  date  and  every  particular,  with  the  amount,  date,  etc., 
contained  in  the  judgment  filed  as  an  exhibit  with  the  bill  and  it  is 
clearly  the  same  debt;  but  as  these  papers  are  not  properly  proved 
or  authenticated,  it  is  claimed  here  that  this  court  can  not  look  to 
them  as  evidence  in  explanation  of  the  case.  We  think,  however, 
that  as  no  objection  was  taken  to  them  in  the  circuit  court,  where 
the  supposed  defect  could  have  been  remedied,  it  comes  too  late 
here  for  the  first  time.  But  if  this  be  not  so,  and  the  facts  stated 
by  the  defendant  be  excluded,  the  plaintiff,  under  his  defective  bill, 
would  have  no  case  on  which  the  court  could  decree  in  his  favor. 

The  circuit  court  on  this  state  of  facts  gave  the  plaintiff  below  a 
decree  against  the  estate  of  Wait  for  the  sum  prayed  for. 
t>  The  question  presented  to  this  court  for  review,  is  this  decree 
j  right?  There  is  no  doctrine  better  settled  in  this  state,  than~tfrat- 
w  here  a  security  pays  a  judgment  for  another,  he  is  entitled  to  be 
substituted  to  all  the  rights  and  remedies  of  the  creditor-against  the 
principal  debtor,  subsisting  at  the  time  be  became  so  bound  for  the 
debt.  Robinson  v.  Sherman,  2  Gratt.  178;  Preston  v.  Preston,  4 
Gratt.  88;  Hill  v.  Manser,  11  Gratt.  522,  and  numerous  other  cases 
might  be  referred  to.  This  doctrine  is  founded  upon  no  statute, 
nor  does  it  grow  out  of  any  contract,  but  it  is  simply  the  custom  of 
a  court  of  equity,  founded  upon  principles  of  equity  and  justice, 
and  such  as  are  necessary  to  be  enforced,  so  that  full  and  complete 
justice  shall  be  done,  as  to  the  rights  of  all  parties  in  interest.  One 
of  the  fundamental  principles  governing  the  courts  in  enforcing  this 
doctrine,  which  will  be  found  to  pervade  all  the  cases  on  the  sub- 
ject, is  that  the  court  will  not  violate  any  legal  right,  by  increasing 
the  legal  liability  of  any  one  of  the  parties  in  interest,  in  enforcing 
its  decrees.  It  will  respect  and  be  governed  by  the  legal  rights 
existing  between  parties  and  even  respect  and  enforce  the  superior 
equities  existing.  As,  for  instance,  if  there  be  a  security  for  the 
debt,  and  the  principal  debtor  does  an  act  by  which  he  introduces  a 
second  security,  in  such  a  way  as  it  would  operate  to  the  relief  of 
the  first  security,  and  the  responsibility  falls  upon  the  second  se- 
'  curity,  it  will  not  revive  the  liability  of  the  first  security  in  favor 
of  the  second,  but  it  will  give  to  the  second  security  all  the  rights  and 
remedies  of  the  creditor,  as  against  the  principal  debtor,  though  it 
will  not,  as  to  the  first  security.  This  doctrine  is  fully  established 
and  illustrated  in  the  case  of  Preston  v.  Preston,  ante. 

In  that  case  Wm.  P.  Floyd  as  principal,  with  John  B.  Floyd, 
John  Preston  and  Thomas  L.  Preston,  his  securities,  executed  a 
bond  to  James  Rea  for  $1,000.  In  1841  Rea  obtained  a  judgment 
against  Wm.  P.  Floyd,  principal,  John  B.  Floyd  and  John  Preston. 
In  1842  he  recovered  a  judgment  against  Thomas  L.  Preston,  the 
other  security.     On  the  first  judgment  an  execution  issued  and  the 


BETWEEN    SUCCESSIVE    SURETIES  629 

property  of  John/B.  Floyd,  a  security,  was  levied  upon.  John  B. 
Floyd  gave  a  formconriiigJ^©«4  with  Thomas  L.  Preston  as  security 
and  judgment  was  rendered  thereon.  The  principal  debtor,  Wm.  P. 
Floyd,  and  John  B.  Floyd,  had  now  become  insolvent.  T.  L. 
Preston  was  compelled  to  pay  the  debt.  On  his  bill  to  compel  John 
Preston  to  contribute  one  moiety  of  the  debt  as  a  cosecurity,  it  was 
held  that  the  rule  was  that  all  securities  should  contribute  equally, 
but  if  one  became  insolvent  his  share  should  be  apportioned  among 
the  solvent  securities ;  but  that  in  that  case  it  appeared  that  the  ex- 
ecution had  been  levied  upon  the  property  of  John  B.  Floyd  and 
his  proportion  of  the  debt  would  have  been  made  out  of  his  prop- 
erty, but  for  the  execution  of  a  forthcoming  bond  in  which  T.  L. 
Preston  joined  as  security,  whereby  John  B.  Floyd's  property  was 
released.  Justice  therefore  required  that  the  loss  of  the  share  of 
John  B.  Floyd  should  fall  on  T.  L.  Preston  and  not  any  part  of  it 
on  John  Preston.  And  the  decree  of  the  court  was,  that  under  the 
circumstances,  the  security  John  Preston  should  only  contribute 
one-third  of  the  debt ;  that  T.  L.  Preston  should  be  charged  with 
his  equal  third  as  well  as  with  that  of  John  B.  Floyd's  third.  The 
same  equitable  principles  are  clearly  enunciated  in  the  case  of 
Langford's  Exr.  v.  Perrin,  5  Leigh.  552.  These  cases,  with  many 
others,  treat  more  particularly  of  the  doctrine  of  contribution,  but 
it  is  in  reality  the  same  doctrine  and  upon  the  solution  thereof 
often  depends  the  redress  to  be  had  in  the  disposition  of  the  case, 
when  the  application  of  the  doctrine  of  substitution  is  to  be  made. 

The  case  of  Douglass  v.  Fagg,  8  Leigh  588,  is  a  leading  case  on  the 
doctrine  of  substitution.  Judge  Parker,  in  his  opinion,  says,  at  page 
598,  "that  all  those  who  are  bound  for  a  debt  for  others,  or  with 
others,  by  whom  they  ought  to  be  discharged,  either  wholly  or  in  part, 
have  a  right,  upon  paying,  to  demand  a  cession  of  the  actions  of  the 
creditor  against  the  other  debtors.  *  *  *  The  doctrine  of  subro- 
gation, it  must  lie  remembered,  is  the  offspring  of  natural  justice, 
ahd  is  not  touncled  in  contract.  It  is  the  creature  of  equity,  and  is 
so  administered  as  to  attain  real,  essential  justice,  without  regard 
to  form.  He  who,  in  administering  it,  would  stick  in  the  letter, 
forgets  the  end  of  its  creation,  and  perverts  the  spirit  which  gave 
it  birth."  It  was  attempted,  says  Judge  Parker,  to  charge  Drafnn 
because  some  of  the  books  lay  down  the  broad  proposition  "that  a 
surety  paying  may  require  the  creditor  to  subrogate  him  to  all  his 
rights,  actions  and  hypothecations  against  all  persons  liable  for  the 
debt."  But  the  courts,  in  applying  the  doctrine,  have  taken  care  to 
make  it  subserve  the  end  of  justice.  Thus  they  always  inquire  who 
is  the  principal  debtor,  and  if  any  one  comes  into  his  room,  as  to 
the  creditor,  they  absolve  previous  sureties ;  holding  that  the  sup- 
plemental surety  comes  also  into  the  room  of  the  principal  debtor, 
as  to  these  previous  sureties. 

Authorities   to   an   indefinite   extent   might  be   multiplied   to   the 


630  SUBROGATION 

same  effect,  but  it  is  deemed  useless,  as  they  are  familiar  to  all ; 
and  the  doctrine  is  common  to  all  courts  both  in  England  and  the 
United  States. 

In  the  case  before  us  the  doctrine  of  subrogation  is  attempted 
to  be  applied  and  enforced,  and  the  question  for  our  consideration 
1  is,  was  it  properly  applied  under  the  facts  in  the  case?  The  plain- 
tiff seemed  to  rely  upon  the  broad  proposition  "that  he  was  a  se- 
curity and  had  paid  the  debt"  and  therefore  he  had  the  right  to  be 
substituted  to  all  the  rights  of  the  creditor  against  all  persons  lia- 
ble for  the  debt.  The  decree  is  based  upon  this  broad  proposition. 
What  were  the  facts?  Crichton  being  indebted  to  Wait,  for  prop- 
erty purchased  of  him,  executed  to  him  a  negotiable  promissory 
note  for  the  amount  of  that  debt,  and  Wait  raised  the  money  thereon 
by  indorsing  it  to  the  bank.  Who  was  the  principal  debtor?  One 
answer  alone  can  be  given  and  that  is  that  Crichton  was  the  debtor. 
Wait  was  the  payee,  the  money  was  due  to  him  until  he  indorsed  it 
over.  This  did  not  make  him  a  principal  debtor,  his  liability  upon 
his  indorsement  was  contingent  until  the  note  was  protested  and 
notice  given  to  him  thereof.  Then  he  became  liable  to  the  bank 
with  Crichton  for  it,  and  a  joint  action  could  be  maintained  against 
them  by  the  bank.  This  was  done  and  thus  the  judgment  claimed 
in  the  bill  was  obtained.  But  it  can  not  be  claimed  that  because 
this  action  could  be  maintained  against  maker  and  indorser,  that  it 
changed  their  relations  to  each  other.  Crichton  was  still  the  prin- 
cipal debtor,  Wait  was  the  payee  and  indorser.  If  "Wait  had  paid 
this  note  at  or  before  protest,  or  after  he  could  have  sued  Crichton 
as  maker;  if  he  had  paid  the  judgment,  he  could  have  recovered 
the  amount  from  Crichton.  So  it  is  clear  the  relation  that  existed 
between  them  when  the  note  was  executed  was  never  changed. 

Now  when  the  execution  issued  against  Crichton,  the  real  debtor, 
and  was  levied  upon  his  property,  if  the  property  had  been  sold, 
the  debt  would  have  been  paid  by  the  right  party  and  Wait's  lia- 
bility would  have  ended.  "Rnf  by  tb.e-.act-Qi-J)ent  the  prop^erty^of 
Crichton  is  relieved  from  sale,  the  debt  is  not  paid,  until  Dent  pays 
it  under  the  execution  awarded  on  the  forthcoming  bond.  Now 
under  many  decisions  of  the  Court  of  Appeals  of  Virginia,  the 
judgment  at  law  is  satisfied  upon  the  execution  and  forfeiture  of 
a  forthcoming  bond  and  Wait  was  entirely  relieved  from  liability^ 
to  the  creditor  while  the  bond  remained  in  force.  See  Garland  v. 
Lynch,  1  Rob.  545,  and  many  cases  therein  referred  to.  <i 

Upon   the   satisfaction   made   by   Dent   he    was   the   security   of^//> 
Crichton,  not  Wait.     He  relieved  Wait  at  law  and  being  relieved  I  &•  , 
at  law  his  liability  will  not  be  revived  in  equity  under  the  equitable 
doctrine  of  subrogation.  ^-J      u 

In  Perrins  v.  Ragland,  5  Leigh.  552,  Carr,  Judge,  in  speaking  of 
the  second  security,  says :  "Another  friend  of  the  debtor  comes 
and  says,  T  will  be  surety  for  the  property,  let  the  debtor  have  it.' 


BETWEEN    SUCCESSIVE    SURETIES 


631 


The  first  surety  tells  him,  'if  he  does  this  it  is  at  his  hazard.  I  am 
now  clear  and  will  keep  so.'  Should  the  second  surety  be  allowed 
to  say,  'I  have  paid  this  execution,  you  were  once  bound  for  it  and 
must  therefore  contribute.'     Surely  not." 

In  the  same  case  Judge  Tucker  says,  '(By  the  levy  of  the  execu- 
tion  upon  the  property  of  the  principal  debtor,  the  sureties  in  the 
onj[mal_bond  were  relieved  of  their  responsibility. "> 

In  the  quotation  above,  from  Parker,  Judge,  in  Douglass  v.  Fagg, 
he  says  expressly:  "That  the  courts  in  applying  the  equitable  doc- 
trnie_of_subrogation  take  care  to  make  it  subserve  the  ends  of  jus-  / 
tice.  Thus  they  always  inquire  who  is  the  principal  debtor,  and  if  f 
any  one  comes  into  his  room  as  to  the  creditor,  they  absolve  pre- 
vious "sureties,  holding  that  the  supplemental  surety  comes  also  into 
tHiTroom  of  the  principal  debtor,  as  to  these  previous  sureties." 

"It  was  claimed  that  Wait  was  not  a  surety,  that  la.-  Was  a  joint 
debtor  and  therefore  he  was  responsible  to  Dent.  I  have  shown 
that  he  was  not  the  principal  debtor;  and  that  is  what  a  court  of 
equity  looks  to  in  granting  relief  in  the  administration  of  the 
equitable  doctrine  of  substitution — that  the  act  of  assembly  giving 
a  joint  action  against  the  maker  and  indorser  of  protested  paper 
does  not  change  their  original  relation  to  each  other. 

Now  I  do  not  deem  it  material  to  consider  what  is  the  legal  rela- 
tion existing  between  the  maker  and  indorser  of  such  paper; 
whether  it  is  that  of  principal  and  security  or  not.  I  am  inclined 
to  the  opinion  that  it  is  not ;  but  that  question  is  not  in  this  case  and 
no  opinion  is  expressed  as  to  it. 

I  am  therefore  of  the  opinion  that  the  decree  in  this  cause  is  er- 
roneous and  that  the  same  be  reversed  and  annulled,  with  costs  to 
the  appellant. 

And  this  court  proceeding  now  to  enter  such  decree  as  the  circuit 
court  should  have  entered  it  is  adjudged  and  ordered  that  the  bill 
be  dismissed  and  the  plaintiff  do  pay  to  the  defendant,  S.  S.  Cook, 
his  costs  by  him  expended  in  the  circuit  court. 

The  other  judges  concurred. 

Decree  reversed  and  bill  dismissed. 

yd  ,  %    ^:v    ~ 

JOHN  W.  HARTWELL  v.  OLIVER  SMITH/ 

15  Ohio  St.  200  (1864). 

TheJFarmers'  and  Millers'  Bank  of  Milwaukee  sued  A.  Mitchell 
Hall,  in  the  superior  court  of  Cincinnati,  and  caused  an  order  of 
attachment  to  be  issued  against  his  property,  on  the  ground  that  he 
\vas_anonresTdent  of  the  state.  Hall  resided  in  Kentucky,  but  car- 
ried on  a  partnership  business  in  Cincinnati,  in  connection  with 
Smith,  the  defendant  in  error. 


632  SUBROGATION 

Before  the  levy  of  the  attachment  upon  any  property,  Hall  ob- 
tained a  discharge  of  the  same,  by  executing  with  Smith,  as  his 
surety,  an  undertaking,  under  section  212  of  the  Code,  to  the  plain- 
tiff in  attachment,  in  the  presence  of  the  sheriff  (it  being  vacation 
of  the  court)  conditioned  that  Hall  should  perform  the  judgment 
of  the  court.     In  due  course  of  procedure,  judgment  was  rendered 
against  Hall.     He  desired  to  have  the  case  heard  on  error  before 
the  general  term  of  the  superior  court.    To  accomplish  this,  and  ob-'j 
tain  stay  of  execution,  he  applied  to  Smith  to  become  his  surety  on/ 
the  error  bond.     Smith  agreed  to  this,  and  they  together  proceeded 
to  the  courthouse,  to  the  clerk  of  the  court,  and  Smith  executec 
,  the  error  bond  prepared  for  him  by  the  clerk. 

All  this  Smith  did,  under  the  impression  that  he  alone  wouMbe 
surety  on  this  error  bond;  but  after  he  had  signed  it,  the  clerk  in- 
formed them  that  there  must  be  an  additional  surety.  Hall  and 
Smith  then  separated  with  the  understanding  that~Hall  would  get 
another  surety.  Hartwell,  the  plaintiff  in  error,  subsequently  signed 
the  bond  as  that  surety,  at  the  request  of  Hall. 

The  court,  in  general  term,  affirmed  the  judgment  against  Hall, 
who  in  the  meantime  had  died,  and  the  bank  recovered  judgment 
on  the  error  bond  against  Smith  and  Hartwell  and  collected  it  from 
Smith.  He  brought  an  action  against  Hartwell  for  contribution, 
and  recovered  judgment  for  a  moiety  of  what  he  had  paid.  To  re- 
verse this  latter  judgment  Hartwell  filed  the  present  petition  in 
error,  in  this  court. 

Scott,  J. :  There  are  two  distinct  and  firmly-established  rights 
of  sureties,  which  are  involved  in  the  consideration  of  this  case. 
First,  that  of  substitution  or  subrogation,  through  which  a  surety 
paying  off  the  debt  of  his  principal  is  entitled  to  stand  in  the  place 
of  the  creditor,  and  have  all  the  rights  which  he  has,  for  the  pur- 
pose of  reimbursement.  A  statement  of  this  right  was  made  in 
clear  and  forcible  terms  by  the  chancellor  (Lord  Brougham),  in 
Hodgson  v.  Shaw,  3  My.  &  K.  183,  where  it  was  said:  "It  is  hardly 
possible  to  put  this  right  of  substitution  too  high,  and  the  right  re-  ' 
suits  more  from  equity  than  from  contract  or  quasi  contract;  unless 
in  so  far  as  the  known  equity  may  be  supposed  to  be  imported  into 
any  transaction,  and  so  raise  a  contract  by  implication." 

The  doctrine  of  the  court  in  this  respect  was  luminously  ex- 
pounded in  the  argument  of  Sir  Samuel  Romilly,  in  Craythorne  v. 
Swinburne  (14  Vesey  160)  ;  and  Lord  Eldon  in  giving  judgment  in 
that  case  sanctioned  the  exposition  by  his  full  approval.  "  'A 
surety,'  to  use  the  language  of  Sir  S.  Romilly's  reply,  'will  be  en- 
titled to  every  remedy  which  the  creditor  has,  against  the  principal 
debtor,  to  enforce  every  security  and  all  means  of  payment ;  to 
stand  in  the  place  of  the  creditor,  not  only  through  the  medium 
of  contract,  but  even  by  means  of  securities  entered  into  without 
the  knowledge  of  the  surety ;  having  a  right  to  have  those  securities 


BETWEEN    SUCCESSIVE    SURETIES  633 

transferred  to  him,  though  there  was  no  stipulation  for  that;  and 
to  avail  himself  of  all  those  securities  against  the  debtor.'  " 

The  other  right  to  which  we  have  referred,  is  that  of  contribu- 
tion, which  arises  in  the  case  of  cosureties,  and  which  each  may 
claim  as  against  the  others  who  are  bound  with  him  in  a  common 
liability.  Whenever  several  sureties  stand  in  the  relation  to  each 
other  of  cosureties,  by  being  bound  for  the  same  person,  and  f or  v 
the  same  debt  or  engagement,  so  that  they  have  a  common  interest, 
or  a  common  burden  to  bear,  if  one  of  them,  be  compelled  to  bearj 
the  whole  or  a  part  of  the  burden  alone,  he  may  call  upon  his  co- 
sureties to  equalize  the  burden  by  contribution.  This  is  a  right  aris- 
ing also  from  equity,  rather  than  from  contract  (except  in  so  far 
as  its  universal  recognition  may  make  it  an  implied  stipulation),  and 
rests  upon  this  ground,  that  where  the  parties  stand  in  equali  jure, 
equity  which  delights  in  equality,  will  require  that  the  discharge 
from  the  common  obligation  which  inures  to  the  equal  benefit  of  all, 
shall  be  obtained  at  their  equal  expense.  Qui  sentit  commodum, 
sentire  debet  et  onus.  Craythorne  v.  Swinburne,  14  Vesey  160; 
Deering  v.  Winchelsea,  2  Bos.  &  P.  270. 

In  the  case  before  us,  two  bonds,  or  undertakings,  were  executed 
by  the  debtor,  with  a  surety  or  sureties  in  each.     First,  the  under- 
taking for  the  discharge  of  the  attachment,   in  which   Smith,  the 
plaintiff'  below,  was  the  sole  surety ;  and  this  was  conditioned  for 
the  debtor's  performance  of  the  judgment  to  be  rendered  by  the 
court  in  the  action  then  pending.     Judgment  was  subsequently  ren- 
dered against  the  debtor,   and  the  liability   of  the   surety,   Smith, 
thereby  became  fixed,  unless  that  judgment  could  be  set  aside  or 
reversed.     With  a  view  to  its  reversal,  the  debtor  filed  a  petition 
in  error  in  the  proper  court ;  and  in  order  to  stay  execution,  entered  , 
into  a  supersedeas  bond  or  undertaking,  conditioned   for  his  pay- 
ment  of  the  condemnation  money  and  costs,  in  case  the  judgment 
should  be  affirmed  upon  error.     This  latter  bond  was  executed  by 
both  the  parties  in  the  present  controversy,  as  sureties.     And  the 
surety,  Smith,  having  been  compelled,  by  the  means  of  a  suit  upon 
the_second  bond,  to  satisfy  the  creditor,  now  seeks  to  enforce  against 
Hartwell,  as  a  cosurety,  his  supposed  obligation  to  make  contnbu- 
tion.     Hartwell  resists  this  claim  on  the  ground  that  as  between 
^tTurtwo  bonds,  the  sureties  in  the  latter  have  a  right,  in  case  pay- 
ment is  enforced  from  them,  to  assert,  on  the  principle  of  subro- 
/gation,  all  the  rights  of  the  creditor  against  the  surety  in  the  first 
I  bond.    And  as  Smith  himself  is  such  sole  surety,  and  therefore,  ul- 
'  timately  liable  to  indemnify  Hartwell,  equity  will  not  require  the 
]  latter  to  make  contribution. 

In  regard  to  this  question  of  superiority  of  equities,  which  is  lia- 
ble to  arise  in  the  case  of  prior  and  subsequent  bonds,  executed  by 
different  sureties,  for  distinct  purposes,  and  both  constituting  se- 
curities in  the  hands  of  the  creditor  for  the  same  debt,  it  is  well 


634 


SUBROGATION 


H 


settled  that  if  the  interposition  of  the  second  surety,  is  for  the 
enelit  of  the  principal  alone,  without  the  sanction  or  assent  of 
the  first  surety,  who  may  he  prejudiced  thereby;  as  when  the  ef- 
fect of  the  second  bond  is  to  prevent  the  enforcement  of  present 
payment  from  the  principal,  and  thus  to  prolong  the  responsibility 
of  the  first  surety;  in  such  a  case  the  equity  of  the  first  surety  is 
superior,  and  he  is  entitled  to  be  subrogated  to  the  rights  of  the 
creditor  as  against  the  second.  \  Parsons  &  Cole  v.  Briddock,  2 
Yern.  608;  Pott  v.  Nathans,  1  Watts  &  S.  155;  Burns  v.  Hunting- 
ton Bank,  1  Penn.  R.  395 ;  Brandenburg  v.  Flynn's  Admr.,  12  B. 
Mon.  397 ;  Dunlap  v.  Foster,  7  Ala.  R.  734  (N.  S.). 

And  this  doctrine  seems  to  be  entirely  equitable,  for  it  is  but 
reasonable  that  the  benefit  intended  for  the  principal  alone,  by  the 
second  surety,  should  be  conferred,  if  at  all,  at  his  own  risk,  and  not 
at  the  risk  or  to  the  prejudice  of  other  parties  whose  wishes  were 
not  consulted  in  the  transaction. 

But  the  rule  is  otherwise,]  where  the  surety^  in  the  second  bond 
becomes  bound  for  a  purpose  in  which  both  the  principal  and  the 
prior  surety  concurs,  in  which  they  both  have  an  interest  and  where 
the  assent  of  the  prior  surety  is  expressly  given,  or  is  clearly  to  he 
inferred  from  the  circumstances  of  the  case.  In  such  a  case  the 
last  surety  has  a  right  to  look  for  his  indemnity,  not  only  to  his 
principal,  but  to  such  fixed  securities  as  had  been  given  to  the  cred- 
1  itor,  when  his  engagement  was  entered  into,  and  on  the  faith  of 
which  he  may  be  presumed  to  have  incurred  his  obligation.  Howe 
v.  Frazier,  2  Robinson  La.  424,  and  authorities  cited  supra. 

It  is  settled  law  that  [if  a  creditor,  by  valid  xontract  with  his 
principal  debtor,  without  trie  consent  of  the  surety,  extend  the  time 
.  of  payment,  by  thus  tying  up  his  own  hands,  and  suspending  his 
right  of  action,  on  the  original  contract,  against  the  principal,  he 
discharges  the  surety.  But  if  the  contract  for  extending  the  time 
be  made  with  the  assent  of  the  surety,  his  liability  remains  un- 
affected. Upon  a  principle  quite  analogous  to  this,  do  the  conflict- 
ing equities  of  prior  and  subsequent  sureties,  in  cases  like  the  pres- 
ent, depend.  If,  without  the  consent  of  the  first  surety,  the  creditor 
is  arrested  in  the  collection  of  his  debt  from  the  principal,  by  the 
interposition  of  a  second  surety,  the  former  will  be  allowed,  for  his 
indemnity,  to  be  subrogated  to  the  rights  of  the  creditor  against  the 
latter.  But  this  equitable  right  can  have  no  place,  where  the  first 
surety  assents  to  the  second  contract  of  suretyship;  and  especially 
where  it  is  entered  into  at  his  instance,  or  for  his  benefit.  His  un- 
qualified assent  and  concurrence  leaves  his  prior  liability  in  full 
force,  as  between  the  two  sureties,  and  entitles  the  latter  to  the 
full  right  of  substitution  as  against  him. 

Applying  this  rule  to  the  facts  of  the  present  case,  as  clearly 
shown  by  the  testimony  of  Smith  himself,  the  court  below  erred 
in  rendering  judgment  in  his  favor.     By  the  execution  of  the  first 


BETWEEN    SUCCESSIVE    SURETIES  635 

bond,  Smith  procured  for  his  principal  the  discharge  of  the  order 
of  attachment.  The  creditor  was  thus  prevented  from  securing 
his  claim  by  a  levy  upon  his  debtor's  property ;  the  bond  of  Smith 
being  substituted  for  such  security.  By  the  subsequent  judgment 
against  the  debtor  this  security  became  fixed.  It  was  for  the  inter- 
est "of  Smith.,  as  well  as  for  that  of  his  principal  that  this  judgment 
srioulcTlDe  reversed.  A  petition  in  error  was  accordingly  filed  by 
fFie_judgment  debtor,  and  Smith  united  with  him  in  executing  an 
undertaking  in  order  to  stay  execution.  This  undertaking  the  clerk 
declined  to  accept,  without  further  security.  The  debtor  thereupon 
/proposed  to  secure  an  additional  security,  and  to  this  Smith,  readily, 
/and  unconditionally,  assented ;  not  for  the  purpose  of  dividing  his 
/  responsibility,  but  because  the  desired  stay  of  execution  could  not 
/  otherwise  be  obtained.  Hartwell,  who  had  no  interest  in  the  mat- 
/  ter,  and  was  hitherto  a  stranger  to  the  wiiole  transaction,  was  ac- 
C  cordingly  procured  as  additional  security.  Under  this  state  of  facts, 
Ijiuiik  it  might  properly  be  said  that  Hartwell  became  a  surety  at 
thj2_r_e4u.es  t  of  Smith  as  well  as  of  the  debtor;  and  that,  in  respect 
toJimv-lhev  were  both  principals,  and  he  surety.  Hunt  v.  Cham- 
bliss,  7  Sm.  &  M.  532;  Cowan  v.  Duncan,  Meigs  R.  (Tenn.)  470. 

But  it  is  enough  to  say  that  the  supersedeas  bond  was  executed 
with  the  express  consent  of  the  prior  surety,  unmistakably  evi- 
denced by  his  being  a  party  to  it ;  and  that  he  can  not  therefore 
claim  for  it  the  effect  of  modifying  his  liability  which  had  been 
previously  fixed.  We  think  it  clear  that  had  the  debt  been  collected 
by  the  creditor  from  Hartwell,  he  should  be  subrogated  to  the 
creditor's  rights  under  the  attachment  bond,  and  that  Smith  can 
.  not  therefore  call  upon  him  for  contribution. 

It  is  claimed  in  argument  that  the  attachment  bond  in  this  case 
is  invalid,  because  taken  by  the  sheriff  before  a  levy  upon  property, 
and  therefore  unauthorized.  But  a  reference  to  sections  212  and 
213  of  the  code  will  show  that  this  point  can  not  be  maintained. 
Those  sections  provide  a  mode  for  the  discharge,  not  merely  of 
property  actually  levied  upon,  but  of  the  attachment  itself ;  and 
this  may  be  effected,  at  any  time,  before  judgment,  by  a  proper 
undertaking  which,  in  vacation,  and  while  the  order  of  attachment 
remains  unreturned  in  the  hands  of  the  sheriff,  may  be  executed 
in  the  presence  of  that  officer. 

Judgment  reversed,  and  cause  remanded. 

Brinkerhoff,  C.  J.,  and  White  and  Welch,  JJ.,  concurred. 


636 


SUBROGATION 


SECTION  7.    CONVENTIONAL  SUBROGATION 

MARY  H.  SHREVE  v.  JOHN  B.  HANKINSON  ET  AL 
34  N.  J.  Eq.  76  (1881). 


i  The  Chancellor  :  The  only  litigation  in  this  case  is  that  which 
arises  out  of  the  cross-bill  filed  by  Risdon  Hankinson  to  establish 
his  claim  to  the  security  of  the  complainant's  mortgage  to  the 
amount  of  $2,500  and  interest^  after  the  complainant's  claim  under 
the  mortgage  shall  have  been  paid.  The  mortgage  was  originally 
for  $13,700  and  interest.  It  was  given  by  John  B.  Hankinson  and 
wife  to  John  Fairbairn,  March  25,  1870,  and  was  payable  in  four 
years.  At  Fairbairn's  death  it  came  into  the  hands  of  Joseph 
Becher,  his  executor.  There  were  then  due  upon  it  $11,500  of  prin- 
cipal, besides  interest.  August  5,  1876,  there  were  paid  to  Becher 
$1,000  on  account  of  the  principal,  and  on  the  24th  of  April  follow- 
ing, $1,500  on  the  same  account.  The  money,  for  thnse__paymp.nts 
was  furnished  by  Risdon  Hankinson,  the  complainant  in  the  cross- 
bill, brother  of  the  mortgagor,  John  B.  Hankinson,  at  the  request 
of  the  latter,  and  on  an  agreement  between  them  (and  they  insist 
Becher  so  agreed  also),  that  the  former  should  have  an  interest 
in  the  mortgage  to  the  amount  of  those  advances,  and  interest  i- 
for  his  security.  On  June  11,  1877,  Becher_assigned  the  mortgage/ 
to  Annie  H.  and  Fannie  S.  Fairbairn,  and  they,  March  25,  1878, 
assigned  it  to  the  complainant.  Risdon  Hankinson's  claim  to  sub-V 
rogation  is  contested  by  Abraham  Vanderbeck  only.  He  is  thd 
holder  of  a  subsequent  mortgage  given  to  him  by  John  B.  Hankin4 
son  on  the  premises.  It  was  subsequently  canceled  of  record,  but! 
Vanderbeck,  in  another  suit  in  this  court,  seeks  to  set  aside  the] 
cancellation.  Both  the  payments  made  with  the  money  advanced 
by  Risdon  Hankinson  were  made  after  Vanderbee4^s— mortgage 
was  given,  which  was  November  8,  1878.  That  they  were  made 
by  John  B.  Hankinson  with  money  borrowed  from  his  brother 
Risdon  for  the  purpose,  and  lent  by  the  latter  to  him  on  the  agree- 
ment that  the  lender  should  have  the  benefit  of  the  mortgage  for 
his  security  for  the  repayment  thereof,  with  interest,  there  is  no 
room  for  doubt.  And  it  seems  quite  clear,  also,  that  Becher,  to 
whom  the  payments  were  made,  was  a  party  to  the  agreement.  Not 
only  do  both  the  Hankinsons  swear  to  it,  but  the  testimony  of  Mr. 
Barrows  (a  counsellor  at  law)  to  the  same  effect,  is  positive  and 
explicit.  He  testifies  that,  in  the  summer  of  1876,  John  B.  Han- 
kinson called  on  and  requested  him  to  find  somebody  who  would 
advance  the  money  for  the  mortgage,  on  which  there  were  then 
due  of  principal,  $12,000;  that  John  B.  and  Risdon  Hankinson  con- 


-CASVVpU^ 


- 

CONVENTIONAL    SUBROGATION  637 

suited  him  with  reference  to  the  feasibility  of  securing  the  latter 
for  the  amount  of  an  advance  of  $2,500  to  be  paid  on  the  mort- 
gage, which  Risdon  was  willing  to  make,  provided  he  could  be  se- 
cured by  means  of  the  mortgage.  Mr.  Barrows,  both  before  and 
after  advising  with  more  experienced  counsel  on  the  subject,  ad- 
vised them  that  Risdon  could  be  secured  by  the  mortgage  for  the 
sums  he  should  advance  for  the  payment  on  account  of  the  prin- 
cipal thereof,  and  which  should  be  so  paid,  provided  the  money 
should  be  advanced  on  that  condition  and  John's  promise  that  it 
should  be  so  secured.  John  borrowed  the  money  under  such  prom- 
ise, and  paid  it  over  to  Becher  on  account  of  the  principal  of  the 
mortgage.     Mr.  Barrows  further  testified  as  follows : 

"On  the  24th  of  April  following  (1871)— it  may  possibly  have 
been  the  23d,  but  my  impression  is  that  it  was  the  24th — Joseph 
Becher,   executor  of   Fairbairn,   John   B.   Hankinson   and   Risdon 
Hankinson,  met  at  my  office ;  Risdon  Hankinson  was  then  prepared 
to  advance  the  further  sum  of  $1,500  to  Becher,  on  the  Fairbairn 
mortgage ;  in  the  presence  of  all  three  above  named  I  stated  how 
Risdon  expected  to  be  secured  for  the  sum  he  was  about  to  ad- 
vance, that  he  was  to  have  an  interest  in  the  Fairbairn  mortgage 
to  that  extent  by  the  promise  and  express  agreement  of  John  B. 
Hankinson  and  of  Becher,  the  executor;  I  asked  John  B.  Hankin- 
son and  Becher  if  they  had  both  proposed  and  agreed  to  that  effect 
with  Risdon  Hankinson;  they  each  replied  they  did;  Mr.  Becher 
then  explained  to  me  that  he  had  already  received  $1,000,  in  August 
preceding,  on  the  same  agreement  and  had  given  to  John  D.  Han- 
kinson a  receipt  for  $1,000,  on  account  of  the  mortgage,  as  coming 
from  Risdon  Hankinson ;  the  money  was  in  shape  of  a  check  which 
was  for  a  larger  amount  than  $1,500,  as  I  remember  it ;  Mr.  Becher 
wanted   the   money   or  a  certified   check;   Risdon   Hankinson   and 
Becher  went  to  the  bank,  and  returned  to  my  office  after  a  short 
interval ;  the  money  was  paid  to  Mr.  Becher  in  my  presence,  and 
was  paid  by  Risdon  Hankinson,  on  the  express  condition  which  I 
then  and  there  in  the  presence  of  all  of  them  stated,  to  wit,  that  he. 
Risdon  Hankinson,  should  be  subrogated  to  and  have  an  interest 
in  the  Fairbairn  mortgage  for  the  moneys  he  so  advanced  to  be  paid 
thereon;  and  as  Mr.  Becher  resided  out  of  the  state,  he  agreed  to 
sign  a  paper,  to  be  drawn  up  by  himself,  reciting  the  facts  of  the 
payments  by  Risdon  Hankinson  of  the  several  sums  of  $1,000  and 
$1,500,  on  account  of  the  mortgage,  and  containing  an  agreement 
that  Risdon  Hankinson  should  have  an  interest  in  the  mortgage  to 
the  extent  of  the  sums  so  paid  by  him,  but  which  should  be  sub- 
ject and  subsequent  to  the  interest  retained  by  him ;  the  interview 
closed  before  such  paper  could  be  drawn,  as  Mr.  Becher  was  de- 
sirous of  returning  to  Philadelphia  on  a  train  then  about  ready  to 
start." 

Both  the  Hankinsons  corroborate  him  in  this  statement.     In  op- 


63S 


SUBROGATION 


position,  the  testimony  of  Air.  Charles  E.  Hendrickson,  who  was 
Becher's  attorney,  is  produced.  The  material  portions  of  his  tes- 
timony are  to  the  effect  that,  before  the  payment  of  April,  1877, 
was  made,  John  B.  Hankinson  called  on  him  and  desired  to  know 
whether  Becher  could  not  make  an  assignment  of  an  interest  in  the 
mortgage  to  secure  Risdon,  if  the  latter  should  lend  him  the  money 
to  pay  on  the  mortgage ;  that  Mr.  Hendrickson  replied,  saying  that 
he  had  doubts  whether  such  an  assignment  was  feasible ;  that 
Hankinson  then  requested  him  to  draw  some  paper  of  that  kind 
and  get  Becher  to  sign  it;  that  Mr.  Hendrickson  declined,  saying 
he  could  do  nothing  about  it  until  after  he  had  consulted  Becher ; 
that  Hankinson  requested  him  to  see  Becher  on  the  subject;  that 
Becher  afterward  came  to  his  office  to  see  him  about  the  matter 
and  inquired  whether  he  could  make  such  an  assignment  without 
prejudice  to  himself  as  executor,  or  to  the  Fairbairn  girls,  to  whom 
he  expected  to  assign  the  mortgage,  expressing  his  willingness 
to  make  the  assignment,  if  it  would  not  prejudice  him  or  his  as- 
signees ;  that  Mr.  Hendrickson  advised  him  against  making  the  as- 
signment; that  Hankinson  called  on  Mr.  Hendrickson  again,  and 
the  latter  told  him  what  advice  he  had  given  to  Becher,  and  that 
Hankinson  urged  upon  him  the  contrary  view  of  the  matter,  insist- 
ing that  the  assignment  could  and  ought  to  be  made,  but  Mr.  Hen- 
drickson declined  to  advise  Becher  to  make  it.  Mr.  Hendrickson 
further  says  that  when,  or  soon  after,  the  payment  was  made,  Ris- 
don Hankinson  called  on  him,  and,  after  Mr.  Hendrickson  had 
communicated  to  him  Becher's  unwillingness  to  make  the  assign- 
ment, Hankinson  requested  him  to  draw  a  paper  stating  that  he, 
Hankinson,  had  paid  the  money.  He  did  so,  and  Hankinson  signed 
it,  and  left  it  with  Mr.  Hendrickson.  That  paper  was  in  form  a 
certificate  that  Risdon  Hankinson  had  paid  to  Becher,  for  his 
brother  John,  $1,500,  on  account  of  the  bond  and  mortgage;  that 
he  consented  that  that  money  should  be  indorsed  on  the  mortgage\ 
as  received  from  him,  and  that  he  claimed  an  interest  for  that 
money  in  the  mortgage,  but  made  no  personal  claim  for  it  against 
Becher  or  Fairbairn's  estate,  or  any  person  to  whom  the  bond  and 
mortgage  should  be  assigned.  The  paper  is  dated  April  30,  1877. 
The  $1,500  were  paid  on  the  24th  of  that  month,  six  days  pre- 
viously. This  paper  is  evidence  that  Risdon  Hankinson,  when  he 
paid  the  money  mentioned  therein,  looked  to  the  mortgage  as  se-j 
curity  for  it.  Becher's  agreement  to  assign,  testified  to  by  MrJ 
Barrows,  was  made  on  the  day  the  $1,500  were  paid — April  24th. 
John  B.  Hankinson  swears  that  when  the  payment  of  August,  1876 
— $1,000 — was  made,  there  was  an  agreement  between  Becher  and 
him  that  when  the  whole  of  the  $2,500  was  paid  Risdon  should 
have  an  interest  in  the  mortgage  to  that  amount.  Bechex  never 
made  the  assignment.  It  may  be  that  Risdon  Hankinson,-  being 
apprehensive  tnatrBecher  would  not  make  the  assignment  according 


CONVENTIONAL    SUBROGATION  639 

promise,  conceived  the  expedient  of  putting  his  claim  in 
and  leaving  it  with  Becher's  attorney.  The  testimony  of 
Mr.  Hendrickson  does  not  countervail  or  contradict  that  of  Mr.  Bar- 
rows and  the  Hankinsons.  Nor  is  the  fact  that  when  Mrs.  Shreve 
took  the  assignment  of  the  mortgage,  John  B.  Hankinson  certified 
on  the  mortgage  that  there  was  then  due  thereon  $9,000  of  princi- 
pal and  $165  of  interest,  at  all  significant.  The  certificate  was  not 
made  by  Risdon  Hankinson,  but  by  John  B.  Hankinson,  and  it  was 
intended  to  estop  him  from  denying  that  these  amounts  of  principal 
and  interest  were  recoverable  by  the  holder  of  the  mortgage,  un- 
der assignment  from  the  Fairbairns.  It  is  clear  from  the  evi- 
dence that  Becher  agreed  that  if  Risdon  Hankinson  would  advance 
the  $2,500  to  be  paid  on  account  of  the  principal  of  the  mortgage,  he 
would  give  him,  for  security  for  the  repayment  thereof,  an  assign- 
ment of  an  interest  to  that  amount  in  the  mortgage ;  the  remaining 
principal,  and  the  interest  thereon,  to  have  priority  over  Risdon 
Hankinson's  claim. 

It  is  urged,  on  behalf  of  Vanderbeck,  that  the  rule  which  denies 
subrogation  in  case  of  merely  partial  payment  is  fatal  to  that  claim. 
But  that  rule  is  not  applicable  to  this  case.  Risdon  Hankinson' 
claim  is  for  conventional,  not  legal,  subrogation.  A  stranger,' 
who,  by  the  authority  and  consent  of  the  debtor,  and  on  his  agree-  / 
ment  that  he  shall  be  subrogated  to  the  rights  of  the  creditor,  makes  I 
payment  for  the  debtor,  will  be  subrogated  if  the  payment  is  made  / 
with  the  express  declaration  of  the  subrogation  in  the  release  made 
by  the  creditor.  Dixon  on  Subr.  164.  The  debtor  and  creditor  in 
this  case  expressly  agreed  with  Risdon  Hankinson  that  if  he  would 
furnish  the  $2,500  he  should  have  an  assignment  of  the  mortgage 
pro  tanto  to  secure  the  repayment  of  the  money.  It  would  be 
against  equity  to  deny  Risdon  Hankinson  the  benefit  of  that  agree- 
ment. The  fact  that_B_ejcher-  did  not  fulfiLhis.  promise  to  assignT  JL2- 
could  not,  of  course,  avail  him.  If  he  were  still  the  holder  of  the 
mortgage,  he  could  not  successfully  resist  the  claim.  No  right  of 
the  complainant  claiming  under  assignment  through  him  will  be 
affected  by  according  it.  Nor  will  any  injustice  be  done  to  Vander- 
beck in  allowing  it  if  he  succeeds  in  reinstating  his  mortgage,  for 
the  payments  in  question  were  made  after  he  took  his  mortgage^ 
There  will  be  a  decree  directing  that  the /property  be  sold_to  raise, 
in  the  first  place,  the  amount  due  the  complainant,  with  her  costs; 
and,  in  the  next  place,  the  $2,500  and  interest  due  Risdon  Hankin- 
son, with  his  costs.  \Vanderbeck's  mortgage  is,  as  before  stated,  in 
litigation.  He  proposes  to  appeal  from  the  decree  in  his  suit,  and 
ask~s~that  the  sale  of  the  mortgaged  premises  be  deferred  until 
after  the  determination  of  his  appeal ;  that  is,  he  seeks  to  stay  the 
sale  and  prevent  the  raising  of  the  money  on  the  complainant's 
mortgage  until  he  shall  have  ascertained,  by  means  of  the  appeal, 
whether  he  has  any  interest  in  the  property  to  protect.  It  would 
obviously  be  unjust  to  accord  his  request. 


n. 

t's 

p-  / 


CHAPTER  VI 

THE    RIGHT    OF    CONTRIBUTION 

SECTION  1.  NATURE  OF  THE  RIGHT  OF  CON- 
TRIBUTION 

OFFLEY  v.  JOHNSON 

2  Leonard  166  (pi.  202)    (1584). 

Offley  and  Johnson  were  bound  as  sureties  with  one  A  to  B,  who 
recovered  against  Johnson  in  London,  and  had  execution  againsl 
him;  and  now  Johnson  sued  Offley,  to  have  of  him  contribution  to 
the  said  execution,  ut  uterque  corum  oneratur  pro  rata,  according 
to  the  custom  of  London :  Offley  removed  the  cause  by  privilege 
into  the  King's  Bench,  whereupon  came  Johnson,  and  prayed  a  pro- 
cedendo ;  and  because  upon  this  matter  no  action  lieth  by  the  course 
of  the  common  law,  but  only  by  custom  in  such  cities,  the  cause  was 
remanded;  for  otherwise  the  plaintiff  should  be  without  remedy: 
See  the  Book  of  Entries,  160. 


LAYER  v.  NELSON 

1  Vcrn.  456  (1687). 

Where  one  obligee  that  is  a  surety  is  sued  alone,  by  the  custom 
of  the  city  of  London  he  shall  make  his  cosureties  contribute ;  so 
where  a  surety  pays  a  debt,  and  has  no  counter-bond,  by  the  custom 
of  the  city  of  London  he  shall  maintain  an  action  against  the  prin- 
cipal. 

Note :  Formerly,  the  remedy  of  one  surety  against  another  for  contrihution 
was  only  in  equity ;  it  is  now  well  settled  that  assumpsit  lies.  Birkley  v.  Pres- 
grave,  1  East.  220;  Bachelder  v.  Fiske,  17  Mass.  464;  Mitchell  v.  Sproul,  28 
Ky.  264. 

41— De  Witt. 

641 


642  RIGHT    OF    CONTRIBUTION 

ESTATE  OF  KOCH/ 
148  Wis.  548,  134  N.  IV.  663  (1912). 

Three  persons,  John  C.  Koch,  deceased,  Henry  A.  Koch,  the  re- 
spondent, and  one  Loeber,  signed  a  guaranty  of  certain  debts  of 
a  corporation  in  which  all  were  stockholders.  Subsequently,  one 
became  bankrupt  and  later  a  second  bought  the  stock  owned  by 
the  third,  giving  his  promissory  notes  therefor.  Later  the  vendee 
died,  not  having  paid  his  notes,  and  leaving,  as  part  of  his  estate,  a 
controlling  interest  in  the  stock.  Substantially  all  the  balance  of 
the  stock  belonged  to  his  sons.  The  estate  was  compelled  to  pay 
a  large  sum  on  the  guaranty.  Plaintiff  made  a  claim  against  the 
estate  for  the  amount  due  on  his  notes.  The  administrator  for 
an  offset,  pleaded  that  the  claimant  was  liable  for  his  due  propor- 
tion of  the  sum  paid  on  the  guaranty.  Such  offset  was  allowed 
in  county  court.  It  was  disallowed  on  appeal  to  circuit 
court.     *     *     * 

Marshall,  J.:  The  judgment  must  be  affirmed.  Not  because 
it  is  grounded  upon  altogether  legitimate  logic,  but  because  it  is 
right. 

Compulsory  contribution  between  cosureties  does  not  rest  in  mere 
equity  though,  true,  such  is  the  origin  of  the  law.    The  individual 

T  chancellor  can  not,  as  an  original  proposition,  do  in  such  case_  what 
he  may  think  will  fit  the  facts  from  the  standpoint  of  justice  in  the 
•abstract.  He  can  not  merely  seize  upon  his  ideal  in  the  moral  sense 
and  vitalize  it  by  a  decree.  That  would  make  contribution  depend 
on  arbitration  in  the  habiliments  of  judicial  administration.  Con-' 
tribution  is  dependable  upon  petty  definitely  established  legal  rules, 
applicable  to  situations  which  may  vary  greatly  as  regards  facts, 
but  fall  into  pretty  well  defined  general  classes.  The  facts  de- 
pendable upon  concession  or  evidence,  or  both,  being  found,  the 
class  and  result  are  governed  by  the  law.  The  court  is  to  apply 
the  law  as  it  is  given,  not  make  it  for  the  found  situation.  True, 
originally,  there  was  a  mere  doctrine  of  contribution.  True,  like 
a  great  body  of  our  law,  it  originated  in  judicial  administration, 
unguided  by  written  law  or  any  rule,  or  anything  but  the  chan- 
cellor's sense  of  justice  and  conception  of  means  to  effectuate  it.  _ 

Doubtless,  "sense  of  right  developed  sense  of  duty."  Contin- 
uing the  logic :  sense  of  duty  developed  sense  of  moral  obligation ; 
sense  of  moral  obligation,  intensified  by  contemplation  of  the  mis- 
chiefs incident  to  its  violation,  developed  sense  of  necessity  for 
compulsory  responsibility;  the  latter  developed  sense  of  need  for 
remedial  justice.  At  that  point  of  growth  progress  waited  for  its 
crowning  effort.  There  was  no  written  law  to  meet  the  case ;  none 
was  offered.     Then  the  boundless  source  of  instrumentalities  for 


//^-> 


NATURE    OF    RIGHT  643 


coping  with  human  transgressions,  with  its  ready  means,  or  power 
of  invention  thereof,  for  reparation  of  every  wrong  above  mere 
moral  infractions  best  dealt  with  by  one's  own  conscience  and  sen- 
sibility to  the  rewards  and  punishments  afforded  by  social  environ- 
ment ;  a  source  as  limitless  and  fruitful  as  man's  capacity  to  wrong 
his  fellowmen ;  that  one  in  which  has  originated  more  of  the  bene- 
ficial regulations  of  human  conduct  found  in  the  scientific  ethics  of 
the  law,  than  in  all  the  legislatures  of  a  century — equity  vitalized 
by  its  human  conscience,  furnished  the  needed  remedy,  recognizing 
the  primary  right,  duty  and  obligation  with  an  environment  of  cor- 
relative rights,  duties  and  obligations,  in  all  an  entirety  with  mu- 
tually dependable  elements  fixing  limitations  and  conditions. 

The  thought  was  that  joint  sureties,  nothing  appearing  to  the 
/contrary,  must  naturally  expect  to  share  the  burdens  assumed,  on 
/a  basis  of  equality,  and,  as  equality  means  equity,  it  was  competent 
I  to  enforce  it  in  chancery.  In  such  enforcement  there  was  ne- 
cessity for  consistency,  recognizing  the  universal  rule  that  he  only 
^ias  en  forcible  equity  who  does  equity.  This  latter  was  important,* 
since  it  was  seen  that  the  ground  of  equity  upon  the  one  side  raised 
the  duty  upon  the  other  to  share  equally  any  advantages  obtained, 
directly  or  indirectly,  from  the  principals,  as  regards  immunity 
from,  or  indemnity  for,  risk,  and  to  use  other  advantages,  such  as 
actual  control  of  the  source  for  discharge  of  the  principal  obliga- 
tion, with  reasonable  care  and  for  mutual  benefit. 

So  from  the  very  nature  of  the  matter  the  whole  subject  of  con- 
tribution was  at  first  and  for  a  long  time  dealt  with  solely  in  equity, 
taking,  however,  more  and  more,  with  the  lapse  of  time,  the  form 
of  a  definite  judicial  code,  appropriate  to  a  proper  standard,  in 
moral  conception,  of  business  ethics.  Those  rules,  being  well  estab- 
lished and  universally  applied  with  quite  as  much  certainty  as  legal 
rules,  strictly  so  called,  or  rules  dependable  upon  written  law,  came 
to  be  regarded  as  automatically  written  into  every  contract  of  guar- 
anty, nothing  appearing  efficiently  to  the  contrary,  and  en  forcible 
at  law  as  well  as  in  equity. 

Now  the  logic  of  the  enforcibility  of  contribution,  at  law  as  well 
as  in  equity,  is  that  there  is  a  real  right  of  contribution  growing  out 
of  the  relations  of  the  parties,  not  a  mere  privilege  to  be  extended 
or  not  in  judicial  discretion.  The  right  may  be  contracted  away  or 
lost  by  violation  of  some  correlative  right,  but  it  is  not  within  the 
province  of  the  court,  as  an  original  matter,  to  give  it  or  take  it 
away.  The  right,  inchoate,  has  its  inception  at  the  time  of  signing 
the  guaranty.  It  sleepeth,  so  to  speak,  till  aroused  into  life,  by  com- 
pulsory payment  by  one  of  more  than  his  share  of  the  loss.  [Upon ; 
others  refusing  to  make  good,  there  is  a  violated  right  creating  a 
cause  of  action  of  legal  or  equitable  cognizance,  or  both.  That 
cause  of  action  is  defendable  against  by  a  violated  right,  in  case  of 
there  being  any;  having  regard  to  the  equitable  duties  of  the  par- 


644  RIGHT    OF    CONTRIBUTION 

ties  to  each  other  as  established  in  the  law,  and  in  contemplation 
of  which  they  are  presumed  to  have  agreed  in  joining  in  the  guar- 
anty. The  idea  is  not  that  any  express  contract  exists  between  co- 
sureties upon  which  an  action  will  lie,  but  that  there  is  a  contract 
implied,  growing  out  of  the  relations  of  the  parties — a  contract 
which  is  contemporaneous  with  the  signing  of  the  guaranty,  not 
which  springs  up  by  overpayment  by  a  surety.  The  latter  fixes  the 
right  in  accordance  with  the  implied  contractual  obligation  made  at 
the  start,  that  the  solvent  resident  guarantors  will  share  equally  any 
loss  resulting  from  the  suretyshio. 

Said  this  court  in  Hardell  v.  Carroll,  90  Wis.  350,  63  N.  W.  275, 
quoting  from  a  standard  author: 

"lThej;ight  of  contribution  is  an  equity  which  springs  up  at  the 

time  two  or  more  persons  assume  as  to  each  other  the  relation— of 

cosureties  for  a  common  principal,  and  ripens  into  a  cause  of  action 

•  when  one  of  the  sureties  pays  more  than  his  proportion  of  the  debt 

for  which  all  were  liable." 

While  it  is  an  equity  the  right  to  the  equity  is  legal  as  well  as 
equitable,  because  the  parties  are  presumed  to  have  agreed  that  the 
right  shall  exist,  and  so  legal  as  well  as  equitable  remedies  are 
available  to  redress  its  violation.  Mason  v.  Pierron,  63  Wis.  239, 
23  N.  W.  119;  Bushnell  v.  Bushnell,  77  Wis.  435,  46  N.  W.  442; 
Faurot  v.  Gates,  86  Wis.  569,  57  N.  W.  294;  Boutin  v.  Etsell,  110 
Wis.  276,  85  N.  W.  964;  Fanning  v.  Murphy,  126  Wis.  538,  548, 
105  N.  W.  1056. 

"The  liability  of  a  surety  to  contribute  to  one  who  has  paid  more 
than  his  share  of  the  common  debt,  is  one  that  is  now  recognized 
and  enforced  both  at  law  and  in  equity." 

The  time  was  that  the  paying  surety  in  an  action  could  only  re- 
cover from  his  cosurety  an  aliquot  part  of  the  whole  debt ;  regard 
being  had  to  the  number  of  sureties,  and  without  regard  to  the  in- 
solvency or  nonresidence  of  any  of  them.  The  considerations  be- 
fore mentioned  induced  a  modification  of  this  rule,  so  that  it  may 
be  said  to  be  jestablished  law  in  this  state,  as  well  as  others,  that, 
when  one  surety  has  paid  the  whole  debt,  he  may  compel  contribu- 
tion from  such  of  his  cosureties  as  are  solvent  and  within  the  state." 
Boutin  v.  Etsell,  supra. 

"In  contemplation  of  law,  the  act"  of  payment  by  a  surety,  the 
principal  having  defaulted,  is  characterized  by  a  request  from  the 
cosurety,  if  there  be  such,  to  the  one  acting  in  the  manner  to  pay 
the  debt,  and  a  promise  on  the  part  of  the  former,  "implied  from 
the  obligation  assumed  to  have  been  entered  into  at  the  start,"  to 
contribute  his  proper  proportion.  Thus  a  cosurety  is  liable  to  con- 
tribute to  the  one  making  the  payment,  both  upon  the  ground  of 
equitable  and  legal  obligation."     Fanning  v.  Murphy,  supra. 

As  before  indicated,  the  right  of  contribution  may  be  parted  with 
to  cosureties  by  contract,  or  lost  to  the  extent  that  prejudicial  breach 


NATURE    OF    RIGHT  645 

of  duty  to  the  cosureties  would  otherwise  proximately  cause  loss 
^oTh^mTlmdlriay  be  forfeited  in  some  other  ways  definitely  estab- 
lishgd_ia-the  law. 

Consistent  with  the  principle  that  each  surety,  impliedly,  by  join- 
ing in  the  guaranty,  contracts  not  to  take  any  special  advantage, 
growing  out  of  means  of  immunity  from,  or  indemnity  for,  loss, 
secured  from  the  principal  during  the  existence  of  the  contract  of 
guaranty,  and  to  reasonably  conserve  for  the  common  protection 
property  of  such  principal  under  his  control,  forming  a  legitimate 
means  of  such  protection,  it  has  been  held  as  follows :  Where  a 
surety  bought  in  the  principal  claim  at  a  discount  he  can  only  claim 
contribution  as  to  the  amount  paid.  Tarr  v.  Ravenscroft,  12  Gratt. 
642 ;  Derosset  v.  Bradley,  63  N.  Car.  17.  A  surety  who  pays  in 
depreciated  currency  can  only  have  contribution  on  the  basis  of  its 
value,  such  currency  not  being  a  legal  tender.  Edmonds  v.  Shea- 
han,  47  Tex.  443.  A  surety  who  receives  security  fromhis  prin- 
cipal, although  the  latter  intends  it  especially  for  the  individual 
benefit,  is  required  to  apply  the  same  for  the  benefit  of  all.  Fuller 
v.  Haggood,  39  Vt.  617,  620.  A  cashier  of  a  bank  in  which  a  prin- 
cipal obligor  is  a  depositor  who  is  an  associate  surety  for  a  liabil- 
ity of  such  principal,  having  received  a  check  from  such  principal 
on  his  account  in  the  bank  to  discharge  such  obligation,  which  he 
negligently  for  some  days  omits  to  efficiently  use  by  transmitting 
the  money  as  requested,  and  in  the  meantime  the  bank  fails,  caus- 
ing the  principal  debtor  to  make  default— is,  by  reason  of  breach 
of  duty  to  his  cosureties  to  use  his  special  knowledge  of  the  situa- 
tion and  instrumentalities  placed  in  his  hands  to  protect  all  liable, 
as  between  them,  for  the  entire  loss.  Crisfield  v.  Murdock,  127  N. 
Y.  315,  27  N.  E.  1046.  A  cosurety  who  receives  indemnity  must 
share  it  with  his  associates  and,  if  having  full  indemnity  he  re- 
leases it,  he  forfeits  the  right  of  contribution.  Sherman  v.  Foster, 
158  N.  Y.  587,  594,  53  N.  E.  504.  If  a  cosurety  takes _ a  chattel 
mortgage  to  indemnify  himself  and  voluntarily  discharges  it  without 
consent  of  his  associates,  they  may  efficiently  plead  such  discharge 
as  a  legal  defense  to  a  claim  against  them  for  contribution.  Ram- 
sey v.  Lewis,  30  Barb.  403.  If  a  surety  procures,  or  negligently 
allows,  forced  sales  of  the  principal  debtor's  property  and  buys  it 
in  at  a  manifestly  inadequate  price,  he  is  chargeable  with  the  full 
fair  value  as  regards  his  right  of  contribution.  Sanders  v.  Weel- 
burg,  107  Ind.  266,  7  N.  E.  573.  If  a  cosurety  obtains  from  the 
principal  a  mortgage  upon  chattels,  in  form  to  secure  himself 
against  loss  by  reason  of  becoming  a  party  to  the  surety  contract, 
he  thereby  becomes  a  trustee  of  such  security  for  the  benefit  of  all 
of  the  sureties,  and  if  he  loses  the  advantage  by  negligence,  he  com- 
mits a  wrong  to  his  associates,  remediable  by  forcing  an  accounting 
as  to  the  security,  charging  such  loss  to  him,  or  by  way  of  defense 
to  his  claim   for  contribution.      Steele   v.   Mealing,   24  Ala.   285 ; 


646 


RIGHT    OF    CONTRIBUTION 


Taylor  v.  Morrison,  26  Ala.  728 ;  Caryton  v.  Johnson,  27  Ala.  503 ; 
Paulin  v.  Kaighn,  29  N.  J.  L.  480. 

All  such  instances  were  ruled  by  settled  results,  in  the  law,  for 
violation  of  recognized  duties — not  by  the  court's  mere  conception, 
in  any  case,  as  an  original  matter,  of  what  was  just. 

We  are  compelled,  seemingly,  to  go  elsewhere  for  illustrations  of 
the  principles  above  stated.  Though  there  is  an  abundance  of  in- 
stances where  they  have  been  applied,  there  is  dearth  of  such  in  the 
history  of  our  own  jurisprudence.  Such  principles  are  so  well  en- 
trenched, as  of  legal  as  well  as  equitable  cognizance,  that  modern 
text-writers  turn  the  matter  off  by  the  mere  statement  that  "the 
right  to  contribution  may  be  destroyed,  by  a  subsequent  contract  of 
the  parties,  or  by  the  fault  of  the  party  who  causes  the  loss  toward 

/I  which  he  seeks  contribution  from  his  co-obligor."  9  Cyc.  804. 
Of  particular  significance  here  is  the  fact  that  both  in  law  and 
equity,  a  cosurety  is  a  quasi-trustee  for  his  associates  of  all  special 
advantages  he  acquires  from  the  principal  debtor — either  in  adver- 
sary proceedings  or  otherwise — for  the  benefit  of  the  bearers  of  the 
common  burden,  with  all  the  duties  incident  to  such  relation.  He 
can  not  specially  profit  out  of  it.  He  is  liable  for  loss  proximately 
caused  to  his  associates  by  failure  to  honestly  and  with  reasonable 
care  perform  his  legal  duty  to  his  associates — to  reasonably  con- 
serve his  special  advantages  for  the  common  benefit ;  this  having 
regard  to  acts  of  omission  as  to  facilities  under  his  control,  or 
commission  respecting  fraudulently  or  negligently  dissipating  the 
means  of  paying  the  principal  debt,  or  indemnity  for  losses  occa- 
sioned by  failure  to  pay — especially  indemnity  derived  from  the 
business  regarding  which  the  liability  has  its  origin.  The  duty  in 
this  regard  is  as  strictly  legal,  though  based  on  equitable  principles, 
as  it  is  plainly  moral. 

The  foregoing,  somewhat  lengthy  discussion,  is  for  the  purpose 
of  showing  that,  upon  the  facts  appearing,  vitalizing,  in  the  absence 
of  anything  of  a  defensive  character,  the  right  of  contribution,  what 
is  matter  of  defense  is  dependable  upon  definite  legal  principles 
though  they  may  be  founded  in  equitable  considerations.  The  in- 
quiry is,  was  the  right  parted  with  by  contract,  or  was  it,  in  whole 
or  in  part,  forfeited  by  breach  of  duty  of  some  sort?  What 
breaches,  in  general,  constitute  a  defense  to  the  claim  for  contri- 
bution, are  well  defined  in  the  law — so  well  that  the  facts  being 
found,  whether  they  constitute  a  defense  or  not,  is  matter  of  law, 

.not  matter  of  discretion.  The  issue  may  be  presented  in  a  legal  or 
equitable  action.  If  the  latter,  the  court  finds  the  facts  and  applies 
thereto  the  established  rules  of  law.  In  the  former,  the  jury  finds 
the  facts  from  the  evidence,  as  in  any  other  case,  and  the  court  ap- 
plies thereto,  subsequently,  the  appropriate  rules  of  law,  or  directs 

:  the  jury  how  to  find  as  a  result  of  their  determination  of  the  contro- 


PARTIES    ENTITLED 


647 


verted   facts  according  to   whether  the  verdict   is   special   or   gen- 
eral.    *     *     * 

Accord :    Russell  v.  Failor,  1  Ohio  St.  327,  59  Am.  Dec.  631. 

The  right  to  contribution  is  not  affected  by  the  fact  that  one  of  two  sure- 
ties is  a  surety  for  compensation,  while  the  other  is  a  surety  for  accommoda- 
tion. United  States  Fidelity  &c.  Co.  v.  McGinnis,  147  Ky.  781,  145  S.  W.  1112. 


SECTION  2.   PARTIES  ENTITLED  TO  THE  RIGHT 

(a)    Sureties  Bound  by  Different  Instruments 

SIR  EDWARD  DEERING  v.  THE  EARL  OF  WINCHELSEA, 

r 


SIR  JOHN  ROUS,  AND  THE  ATTORNEY-GENERAL 


2  B.  &  P.  270  (1787). 

Lord  Chief  Baron  Eyre  (present  Hotham  and  Perryn,  Barons) 
delivered  the  opinion  of  the  court. 

Thomas^ Peering,  younger  brother  of  the  plaintiff,  was  appointed 
inJvTS-ceceiver  of  fines  and  forfeitures  of  the  customs  of  the  out- 
ports,  and  ci. tercel  into  three  bonds,  each  in  the  penalty  of  ^:{){){)-_ 
with  condition  for  duly  accounting ;  in  one  of  which  the  plaintifi 
joined  as  surety,  in  another  Lord  Winchelsea,  and  Sir  John  Rous 
injhe  third.  Thomas  Deering  became  insolvent,  and  left  the  coun- 
try ;  the  balance  due  to  the  crown  was  £6,602  10s.  8d.,  part  of  which 
/wasjevied  on  his  effects,  and  when  the  bill  was  filed,  there  was  due 
/£3383~14s. "8^d..  which  was  rather  less  than  the  penalty  of  each  of 
the  bonds.  The  bond  in  which  the  plaintiff  had  joined  was  put  in 
j  SiuTagamst  him,  and  judgment  obtained.  He  filed  his  bill  demand- 
ing contribution  against  Lord  Winchelsea  and  Sir  John  Rous,  and 
praying  an  account  of  what  was  due  to  the  crown,  and  money  levied 
on  'the  plaintiff  (supposing  execution  to  follow  the  judgment), 
and  tliatLord  Winchelsea  and  Sir  John  Rous  might  contribute  to 
discharge  the  debt  of  Thomas  Deering  as  two  of  the  sureties  of 
that  debt.  The  appointment,  the  three  bonds,  and  the  judgment 
against  the  plaintiff,  were  in  proof,  and  the  balances  were  admitted 
by  all  parties. 

The  Lord  Chief  Baron  after  stating  the  case,  observed,  that  con- 
tribution was  resisted  on  two  grounds;  first,  that  there  was  no 
.foundation  for  the  demand  in  the  nature  of  the  contract  between 
the  parties,  the  counsel  for  the  defendants  considering  the  title  to 
contribution  as  arising  from  contract  expressed  or  implied;  sec- 
ondly, that  the  conduct  of  Sir  Edward  Deering  had  deprived  him 
of  the  benefit  of  any  equity,  which  he  might  have  otherwise  had 
against  the  defendants. 


648 


RIGHT    OF    CONTRIBUTION 


The  Lord  Chief  Baron  considered  the  second  objection  first.  The 
misconduct  imputed  to  Sir  E.  Deering  was,  that  he  had  encouraged 
his  brother  in  irregularities,  and  particularly  in  gaming,  which  had  , 
ruined  him,  and  had  done  this  knowing  his  fortune  to  be  such  that/ 
he  could  not  support  himself  in  his  extravagances,  and  faithfully 
account  to  the  crown ;  that  Sir  E.  Deering  was  privy  to  his  brothj 
er's  breaking  through  the  orders  given  him  to  deposit  the  money  he 
received  in  a  chest  under  the  key  of  the  comptroller.  His  Lord1- 
ship  observed,  that  this  might  be  true,  and  certainly  put  Sir  E. 
Deering  in  a  point  of  view,  which  made  his  demand  indecorous; 
but  it  had  not  been  made  out  to  the  satisfaction  of  the  court,  that 
this  constituted  a  defense..  Mr.  Maddocks  had  stated  that  the  au- 
thor of  the  loss  should  not  have  contribution ;  but  stated  neither 
reason  nor  authority  to  support  the  principle  he  urged.  If  these 
were  circumstances  which  could  work  a  disability  in  the  plaintiff  to 
support  his  demand,  it  must  be  on  the  maxim,  "that  a  man  must 
come  into  a  court  of  equity  with  clean  hands ;"  but  general  de- 
pravity is  not  sufficient.  It  must  be  pointed  to  the  act  upon  which 
the  loss  arises,  and  must  be  in  a  legal  sense  the  cause  of  the  loss. 
In  a  moral  sense  Sir  E.  Deering  might  be  the  author  of  the  loss; 
but  in  a  legal  sense,  Thomas  Deering  was  the  author;  and  if  the 
eyil_example  of  Sir  E.  Deering  led  him  to  it,  yet  this  was  not  what 
a  court  of  justice  could  take  cognizance  of.  \  There  might,  indeed, 
be  a  case  in  which  a  person  might  be  in  a  legal  sense  the  author  of 
the  loss,  and  therefore  not  entitled  to  contribution ;  as  if  a  person 
on  board  a  ship  was  to  bore  a  hole  in  the  ship,  and  in  consequence 
of  the  distress  occasioned  by  this  act,  it  became  necessary  to  throw 
overboard  his  goods  to  save  the  ship.  This  head  of  defense  there- 
fore fails.  The  real  point  is,  whether  there  shall  be  contribution 
pby  sureties  in  distinct  obligations? 

It  is  admitted,  that  if  they  had  all  joined  in  one  bond,  for  £12,000, 
there  must  have  been  contribution.  But  it  is  said  to  be  on  the  foun- 
dation of  contract  implied  from  their  being  parties  in  the  same  en- 
gagement, and  here  the  parties  might  be  strangers  to  each  other. 
And  it  was  stated,  that  no  man  could  be  called  upon  to  contribute 
who  is  not  a  surety  on  the  face  of  the  bond  to  which  he  is  called  to 
contribute.  The  point  remains  to  be  proved,  that  contribution  is 
founded  on  contract.  If  a  view  is  taken  of  the  cases,  it  will  ap- 
pear that  the  bottom  of  contribution  is  a  fixed  principle  of  justice, 
and  is  not  founded  in  contract.  Contract,  indeed,  may  qualify  it, 
as  in  Swain  v.  Wall,  1  Ch.  Rep.  149,  where  three  were  bound  for 
H.  in  an  obligation,  and  agreed  if  H.  failed  to  bear  their  respective 
parts.  Two  proved  insolvent,  the  third  paid  the  money,  and  one 
of  the  others  becoming  solvent,  he  was  compelled  to  pay  a  third 
only. 

There  are  in  the  Register,  fo.  176.b.  two  writs  of  contribution, 
one,  "De  contributione  facienda  inter  cohaeredes,"  the  other,  "De 


PARTIES    ENTITLED  649 

feoffamento ;"  these  are  founded  on  the  statute  of  Marlbridge,  52 
H.  3.  c.  9.  which  enacts  "that  if  any  inheritance,  whereof  but  one 
suit  is  due,  descends  unto  many  heirs,  as  unto  parceners,  whoso 
hath  the  oldest  part  of  the  inheritance,  shall  do  that  one  suit  for 
himself  and  fellows,  and  the  other  coheirs  shall  be  contributaries 
according  to  their  portion  for  doing  such  suit.  And  if  many 
feoffees  be  seized  of  an  inheritance  whereof  but  one  suit  is  due, 
the  Lord  of  the  fee  shall  have  but  that  one  suit,  and  shall  "not  exact 
of  the  said  inheritance  but  that  one  suit,  as  hath  been'  used  to  be 
done  before.  And  if  these  feoffees  have  no  warrant  "or  means 
which  ought  to  acquit  them,  then  all  the  feoffees  according  to  their 
portion  shall  be  contributaries  for  doing  the  suit  for  them."  The 
object  of  the  statute  was  to  protect  the  inheritance  from  more  than 
one  suit.  The  provision  for  contribution  was  an  application  of  a 
principle  of  justice.  In  Fitzh.  N.  B.  162.  B.  there  is  a  writ  of  con- 
tribution where  there  are  tenants  in  common  of  a  mill,  and  one  of 
them  will  not  repair  the  mill,  the  other  shall  have  the  writ  to  com- 
pel him  to  contribute  to  the  repair.  In  the  same  page,  Fritzherbert 
takes  notice  of  the  writs  of  contribution  between  coheirs  and  co- 
feoffees  ;  and  supposes  that  between  feoffees  the  writ  can  not  be 
had  without  the  agreement  of  all  and  the  writ  in  the  register  coun- 
tenances the  idea;  yet  this  seems  contrary  to  the  express  provision 
in  the  statute.  In  Sir  William  Harbet's  case,  3  Co.  11  b.  many 
cases  are  put  of  contribution  at  common  law.  The  reason  is,  they 
are  all  in  aequalia  jure,  and  as  the  law  requires  equality,  they  shall 
equally  bear  the  burden.  This  is  considered  as  founded  in  equity ; 
contract  is  not  mentioned.  The  principle  operates  more  clearly  in 
a  court  of  equity  than  at  law.  At  law,  the  party  is  driven  to  an 
audita  querela  or  scire  facias  to  defeat  the  execution,  and  compel 
execution  to  be  taken  against  all.  There  are  more  cases  of  contri- 
bution in  equity  than  at  law.  In  Equity  Cases  Abridged  there  is  a 
string  under  the  title  "Contribution  and  Average."  Another  case 
at  law  occurred  in  looking  into  Hargrave's  Tracts  in  a  treatise 
ascribed  to  Lord  Hale  on  the  prisage  of  wines.  The  King's  title 
is  to  one  ton  before  the  mast,  and  one  ton  behind  the  mast.  If 
there  are  different  owners,  they  may  be  compelled  in  the  Exchequer 
Chamber  to  contribute.  Contribution  was  considered  as  following 
the  accident  on  a  general  principle  of  equity  in  the  court  in  which 
we  are  now  sitting. 

In  the  particular  cases  of  sureties,  it  is  admitted,  that  one  surety 
may  compel  another  to  contribute  to  the  debt  for  which  they  are 
jointly  bound.  On  what  principle?  Can  it  be  because  they  are 
jointly  bound?  What  if  they  are  jointly  and  severally  bound? 
What  if  severally  bound  by  the  same  or  different  instruments? 
In  every  one  of  these  cases  sureties  have  a  common  interest  and 
a  common  burden.  They  are  bound  as  effectually  quoad  contribu- 
tion as  if  bound  in  one  instrument,  with  this  difference  only,  that 


650 


RIGHT    OF    CONTRIBUTION 


the  sums  in  each  instrument  ascertain  the  proportions,  whereas  if 
they  were  all  joined  in  the  same  engagement  they  must  all  con- 
tribute equally. 

In  this  case,  Sir  E.  Deering,  Lord  Winchelsea,  and  Sir  F.  Rous, 
were  all  bound  that  Thomas  Deering  should  account.  At  law  all 
the  bonds  are  forfeited.  The  balance  due  might  have  been  so  large 
as  to  take  in  all  the  bonds ;  but  here  the  balance  happens  to  be  less 
than  the  penalty  of  one.  Which  ought  to  pay?  He  on  whom  the  _ 
crown  calls  must  pay  to  the  crown ;  but  as  between  themselves  they 
are  in  aequali  jure,  and  shall  contribute.  This  principle  is  carried 
a  great  way  in  the  case  of  three  or  more  sureties  in  a  joint  obliga- 
tion ;  one  being  insolvent  the  third  is  obliged  to  contribute  a  full 
moiety.  This  circumstance,  and  the  possibility  of  being  made  liable 
to  the  whole,  has  probably  produced  several  bonds.  But  this  does 
not  touch  the  principle  of  contribution  where  all  are  bound  as 
sureties  for  the  same  person. 

There  is  an  instance  in  the  civil  law  of  average,  where  part  of  a 
cargo  is  thrown  overboard  to  save  the  vessel.  Shaw.  Pari.  Cas.  19 
Moor.  297.  The  maxim  applied  is  qui  sentit  commodum  sentirel 
debet  et  onus.  In  the  case  of  average  there  is  no  contract  express/ 
or  implied,  nor  any  privity  in  an  ordinary  sense.  This  shows  that 
I  contribution  is  founded  on  equality,  and  established  by  the  law  of 
all  nations.  . 

There  is  no  difficulty  in  ascertaining  the  proportions  in  which 
'.  the  parties  ought  to  contribute.     The  penalties  of  the  bonds  ascer-l 
tain  the  proportions.  J 

The  decree  pronounced  was,  that  it  being  admitted  by  the  attor- 
ney-general, and  all  parties,  that  the  balance  due  was  £3,883  14s. 
8^d.  the  plaintiff,  Sir  E.  Deering,  and  the  defendants,  the  Earl 
of  Winchelsea  and  Sir  F.  Rous,  ought  to  contribute  in  equal  shares 
to  the  payment  thereof,  and  that  they  do  accordingly  pay  each  £1,294 
lis.  6*4d.  and  on  payment  the  attorney-general  to  acknowledge 
satisfaction  on  the  record  of  the  judgment  against  the  plaintiff,  and 
the  two  bonds  entered  into  by  the  Earl  of  Winchelsea  and  Sir  F. 
Rous  to  be  delivered  up. 

This  being  a  case  which  the  court  considered  as  not  favorable 
to  Sir  E.  Deering,  and  a  case  of  difficulty,  they  did  not  think  fit  to 
give  him  costs. 


Accord:  Loring  v.  Bacon,  3  Cush.  (Mass.)  465;  Bell  v.  Jasper,  37  N.  Car. 
597;  Moore  v.  Hanscom,  103  S.  W.  (Tex.)  665;  Remage  v.  Marple,  76  W. 
Va.  379,  85  S.  E.  663.  l 

But  see  Assets  Realization  Co.  v.  American  Bonding  Co.,  88  Ohio  St._216, 
102  N.  E.  719,  Ann.  Cas.  1915A,  1194. 


PARTIES    ENTITLED  651 


CHARLES  F.  YOUNG  v.  JACOB  SHUNK  ET  AL. 
30  Minn.  503,  16  N.  W.  402  (1883). 

;     Plaintiff  brought  this  action  in  the  district  court  for  Goodhue 
county^agajnkt  deTp^HarffSTT^-cosureties  withhimself.  seeking  to  ■ 
enforce  coro:HDUtion_  f  r  omthem.     The  action  was  tried  before  Mc- 
Cluer,  J.,  and  a  jury,  and,  when  both  parties  rested,  the  court,  on 
defendant's  motion,  directed  a  verdict  in  their  favor. 

From  the  uncontradicted  evidence  offered  and  received  on  the 
trial,  it  appeared  that  the  defendants  executed  and  delivered  to 
the  Davis  Se wing-Machine  Company  their  written  guaranty,  to 
the  amount"- of  $2,000,  dated  June  26,  1876,  for  the  performance 
by  one  Paulson  of  a  certain  contract  made  by  him  with  the  com- 
pany on  the  same  day  ;  that  subsequent  to  the  making  of  defendants' 
guaranty,  plaintiff  also  executed  and  delivered  to  the  same  com- 
pany his  written  guaranty  for  the  performance  of  the  same  con- 
ract~  dated  on  the  same  day,  and  in  the  same  words  as  defendants' 
guaranty,  excepting  that  it  was  only  to  the  amount  of  $1,000;  that 
afterward,  Paulson  having  failed  to  perform  his  contract,  the  com- 
pany  brought  suit  against  plaintiff  upon  his  guaranty,  and  recovered 
judgment  for  its  amount,  which  judgment  plaintiff  paid,  and  that 
plaintiff  gave  defendants  due  notice  of  such  suit.  It  also  appeared 
:rom  plaintiff's  evidence  that,  after  defendants  had  executed  their 
guaranty,  it  was  presented  by  Paulson  to  plaintiff  for  his  signa- 
ture, and  he  refused  to  sign  it,  stating  "that  he  would  not  sign  a 
bond  with  anybody  else ;  that  he  would  become  individually  respon- 
\  sible  for  $1,000,  for  Mr.  Paulson." 

A  motion  for  a  new  trial  was  denied,  the  court  holding  that  the 
contracts  of  guaranty  on  their  faces  are  distinct;  that  "evidence 
must  be  looked  for  outside  of  these  instruments  to  connect  them  to- 
gether and  show  that  they  refer  to  the  same  duty,"  and  that  the  evi- 
dence introduced  shows  "that  plaintiff  did  not  intend  the  trans- 
actions should  be  connected,  refused  to  sign  a  joint  bond,  and  exe- 
cuted this  independent  obligation  for  the  purpose  of  disconnecting 
himself  entirely  from  the  defendants,"  and  citing  and  relying  on 
Norton  v.  Coons,  3  Denio  130.  Plaintiff  appeals  from  the  order 
refusing  a  new  trial. 

Gilfillan,  C.  J. :  Martin  Paulson  entered  into  a  contract  with 
the  Davis  Sewing-Machine  Company.  The  defendants,  by  an  in- 
strument under  seal,  guarantied,  to  the  amount  of  $2,000,  the  per- 
formance by  Paulson  of  said  contract.  Afterward,  plaintiff,  by  a 
separate  instrument  under  seal,  guarantied,  to  the  amount  of  $1,000, 
the  performance  by  Paulson  of  the  same  contract.  The  plaintiff, 
having  been  compelled  to  pay  the  $1,000  by  reason  of  Paulson's 
failure  to  fulfil  his  contract,  brings  this  action  to  enforce  contribu- 


652  RIGHT    OF    CONTRIBUTION 

lion  from  defendants.     They  insist  that  he  and  they  were  not  co- 
sureties, k 

Persons  are  cosureties,  so  as  to  give  the  right  of  contribution, 
when  they  are  bound  for  the  performance  by  the  same  principal 
of  the  same  duty;  and  whether  they  become  so  at  the  same  time; 
or  at  different  times,  by  one  or  by  several  instruments,  and  evenl 
that  they  are  bound  in  different  amounts,  or  that  each  is  ignorant 
that  the  others  are  sureties,  does  not  affect  the  relation  nor  the 
right.  The  right  does  not  seem  to  rest  upon  contract  ( for  a  contract 
can  not  be  assumed  between  persons  who  may  each  be  ignorant  of 
the  other's  existence),  but  upon  this  natural  principle  of  equity, 
that  where  the  same  burden  is  assumed  equally  by  several,  and  one 
of  them  is  compelled  to  discharge  it,  the  others  ought  to  contribute 
each  his  share,  so  as  to  preserve  equality. 

As  the  obligation  to  contribute  arises,  not  from  contract  between 
ythe  cosureties  but  from  the  existence  of  that  relation — that  is,  of 
sureties  for  the  same  principal  and  the  same  duty — it  may  be 
doubted  that  the  intention  of  the  surety  in  respect  to  contribution, 
at  the  time  of  becoming  such,  unless  expressed  m  the  way  of  a  con- 
tract between  him  and  the  other  sureties,  will  affect  the  right. 

However,  that  may  be,  the  evidence  in  this  case  does  not  make 
it  appear  that,  at  the  time  of  becoming  surety,  the  plaintiff  intended 
to  exclude  the  right  or  obligation  of  contribution.  He  made  no  ob- 
jection to  assuming  the  relation  of  cosurety,  but  objected  only  to 
executing  the  same  instrument  with  the  others.  His  reason  for  pre- 
ferring to  become  surety  by  a  different  instrument  was  not  given. 
It  is  going  too  far  to  assume  that  it  was  because  he  did  net  intend  | 
to  contribute  if  one  of  the  others  paid,  nor  to  call  on  them  for  con- 
tribution if  he  paid.  It  was  error  to  direct  a  verdict  for  defendants,  j 
As  the  evidence  stood,  the  verdict  ought  to  have  been  for  plaintiff.  / 

Order  reversed,  and  new  trial  ordered. 

Stearns  Suretyship,  2nd  ed.,  §  264:  "A  supplemental  surety,  or  one  who 
engages  to  answer  for  the  default  of  another  who  has  already  become  bound 
as  a  promisor  in  suretyship,  is  not  liable  to  contribution,  since  as  to  such 
promisor  the  earlier  surety  is  in  the  relation  of  a  principal  debtor.  The  same 
is  true  of  successive  accommodation  indorsers  in  the  absence  of  special  agree- 
ment to  become  jointly  bound." 


1     /  -i 


PARTIES    ENTITLED  653 

(b)    One  Who  Becomes  Surety  at  Request  of  a  Cosurety 

TURNER  v.  DA  VIES 
2  Esp.  478  (1796). 

This  was  an  action  of  assumpsit  for  money  paid,  laid  out,  and  ex- 
pendeaLlaJhe  use  of  the  defendant. 

Plea  of  nonassumpsit. 

The  action  was  brought  to  recover  from  the  defendant  a  moiety 
.of  the  sum  of  £23  paid  by  Turner,  the  plaintiff,  on  account  of  the 
debt  of  one  Evans,  and  arose  under  the  following  circumstances: 

There  being  an  execution  in  Evans's  house,  at  the  suit  of  Brough;  ' 
to  induce  Brough  to  withdraw  it,  and  to  secure  the  debt,  Tanner, 
the  plaintiff,  and  Davies,  the  defendant,  joined  in  a  warrant  of  at- 
torney to  Brough;  but  Davies  had  joined  in  consequence  of  having 
been  applied  to  by  Turner,  and  Brough,  who  required  an  additional 
security.  Turner,  the  plaintiff,  took  a  bill  of  sale  from  Evans  for 
his  own  security,  dated  20th  of  January,  1796;  and  an  indorsement 
was  made  on  it,  declaring  the  purpose  for  which  it  was  given. 

Another  execution  having  issued  against  Evans,  the  goods  were 
taken  in  execution,  and  Turner,  the  plaintiff,  had  paid  the  whole 
of  B rough's  demand,  and  now  brought  this  action  against  the  de- 
fendant for  contribution  of  the  moiety. 

^Eord  Kenyon  :  I  have  no  doubt,  that  where  two  parties  become 
joint  sureties  for  a  third  person,  if  one  is'called  upon  and  forced  to 
pay~tKe  whole  of  the  money,  he  has  a  right  to  call  on  his  cosecurity 
for  contribution ;  but  where  one  has  been  induced  so  to  become 
surety  at  the  instance  of  the  other,  though  he  thereby  renders  him- 
self liable  to  the  person  to  whom  the  security  is  given,  there  is  no 
pretense  for  saying  that  he  shall  be  liable  to  be  called  upon  by  the 
person  at  whose  request  he  entered  into  the  security.  This  is  the  , 
case  here ;  Davies  the  defendant,  became  security,  at  the  instance  of 
Turner,  the  plaintiff,  to  Brough,  and  there  is  still  less  pretext  for 
/  Turner  to  call  on  the  defendant  in  this  action,  so  he  took  the  pre- 
caution to  secure  himself  by  a  bill  of  sale.  I  am  of  opinion  the  de- 
fendant ought  to  have  a  verdict. 

The  jury  found  for  the  defendant. 


S 


654 


RIGHT   OF   CONTRIBUTION 


BAGOTT  ET  AL.  v.  MULLEN 

\( 
32  Ind.  332,  2  Am.  Rep.  351  (1869). 

Ray,  J.:  Complaint  against  appellants,  charging  that,  in  1864, 
the  state,  on  relation  of  Hasselman  and  another,  recovered  a  judg- 
ment against  one  Vandever,  as  sheriff,  and  the  appellee,  and  the  ap- 
pellants, upon  an  official  bond,  a  copy  of  which  judgment  is  filed 
with  the  complaint ;  that  said  Vandever  is  notoriously  insolvent ; 
and  that  appellee  has  been  compelled  to  pay  said  judgment  in  full, 
and  demands  contribution  from  the  appellants. 

A  sixth  paragraph  of  answer  was  filed,  which  averred  that  proc- 
ess was  not  served  personally  on  the  appellants  in  the  suit  upon 
which  the  judgment  was  rendered,  and  that  neither  of  the  appel- 
lants appeared  to  the  action ;  but  that  the  appellee,  without  author- 
ity, appeared  for  them  and  suffered  judgment  to  be  entered  against 
them,  to  defraud  them,  and  entered  into  a  special  contract  with  the 
relators  to  pay  the  said  judgment  with  funds  belonging  to  the  said 
defendant  Vandever,  then  in  the  hands  of  the  said  appellee,  and,  in 
consideration  of  said  agreement,  received  an  extension  of  time, 
for  one  year,  on  said  judgment ;  that  but  for  such  extension  of 
time,  the  sum  named  in  said  judgment  could  have  been  made  out 
of  the  property  of  said  Vandever;  and  that  said  extension  of  time 
Avas  given  out  of  the  knowledge  of  said  appellants.  It  is  also  al- 
leged that  the  appellants  signed  the  official  bond  of  Vandever  from 
which  the  liability  arose,  at  the  request  of  the  appellee. 

A  demurrer  was  sustained  to  this  paragraph.     *     *     * 

There  remains,  then,  the  averment  that  the  appellants  signed  the 
bond  of  Vandever,  as  sheriff,  at  the  request  of  the  appellee. 

It  is  stated  in  Chitty  on  Contracts,  that  (if  the  surety  from  whom  i 
contribution  is  claimed,  become  bound  at  the  request  j?JL.the_ surety 
who  seeks  to  recover  it,  he  is  not  liable ;  for  in  such  a  case  the] 
promise  to  contribute  implied  in  law  is  negatived.  10th  Am.  Ed. 
669.  The  cases  cited  as  sustaining  this  rule,  are  Turner  v.  Davies, 
2  Esp.  478;  Thomas  v.  Cook,  8  B.  &  C.  728;  Apgar  v.  Hiler,  4 
Zabr.  812. 

In  the  case  first  cited,  Turner  sued  Davies  to  recover  a  moiety 
lof  a  sum  paid  by  him  on  account  of  the  debt  of  one  Evans.  Thec_ 
foundation  for  the  claim  to  contribution  against  Davies  was  this : 
There  being  an  execution  in  Evans's  house,  at  the  suit  of  one 
Brough,  to  induce  the  execution  plaintiff  to  withdraw  it.  Turner 
and  Davies  joined  in  a  warrant  of  attorney  to  Brough,  but  Davies 
joined  in  consequence  of  having  been  applied  to  by  Turner,  and 
also  by  Brough,  who  required  an  additional  security.  Turner,  the 
plaintiff,  at  the  time,  took  a  bill  of  sale  from  Evans  for  his  in- 
demnity.    It  was  held,  that  Davies  was  not  bound  to  contribute, 


^ 


PARTIES    ENTITLED  655 

Turner  having  been  compelled  to  discharge  the  debt  of  Evans.  Lord 
Kenyon,  while  resting  this  case  specially  on  the  ground  that  Turner 
had  secured  himself  by  a  bill  of  sale,  declared,  that  where  one  has 
been  induced  to  become  security  at  the  instance  of  another,  though 
he  thereby  renders  himself  liable  to  the  person  to  whom  the  security 
is  given,  there  is  no  pretense  for  saying  that  he  shall  be  liable  to  be 
called  upon  by  the  person  at  whose  request  he  entered  into  the  se- 
curity. 

The  case  of  Thomas  v.  Cook,  was  where  one  signed  as  cosurety, 
at  the  request  of  a  surety  who  agreed  to  save  him  harmless.  It 
was  held,  that  the  promise  to  save  harmless  was  a  good  defense  to 
an  action  by  the  promisor.     *     *     * 

In  Apgar  v.  Hiler,  it  was  held,  that  where  one  of  two  sureties 
becomes  such  at  the  request  of  his  cosurety  and  upon  his  promise 
that  he  will  be  put  to  no  loss,  he  may  recover  the  whole  of  what  he 
may  have  been  compelled  to  pay  of  his  cosurety.     *     *     * 

In  all  these  cases  there  was  something  more  than  a  mere  request 
by  one  surety  to  another  to  execute  the  note  or  paper  as  cosurety. 
There  was  either  a  promise  written  or  verbal  to  indemnify,  or  a 
taking  of  security  from  the  principal,  and  from  either  of  these  cir- 
cumstances the  courts  hold  such  surety  released  from  contribution. 

He********* 

Are  we  then,  to  follow  the  broad  doctrine  declared  by  Lord  Ken- 
,  yon,  and  the  application  of  which  was,  in  fact,  uncalled  for  in  the 
case  before  him — a  case  decided  at  nisi  prius — and  never  hereto- 
fore applied  by  any  court,  and  hold  the  surety  discharged  by  the 
simple  request  of  his  cosurety  to  sign  the  obligation? 
^  If  a  surety  making  the  request,  receive  any  personal  benefit  from 
the  execution  of  the  obligation — as  where  the  money  raised  thereon 
goes  into  his  hands,  or  where  he  has  already  incurred  a  liability 
upon  an  instrument  completed  by  delivery— [we  can  see  a  propriety 
in  the  court  treating  the  person  thus  benefited  and  making  the  re- 
quest, as  a  principal,  and  the  person  signing  at  such  request  as  his 
surety  only  and  not  liable  to  contribute  for  his  benefit.  So,  where 
the  signature  is  upon  an  express  contract  to  indemnify,  the  consid- 
eration supports  the  promise  and  discharges  the  surety  from  the 
legal  obligation  otherwise  resting  upon  him. 

But  (where  parties  standing  in  an  equal  relation  to  the  principal 
sign  as  sureties  for  that  principal,  the  one  at  the  request  of  the 
other,  we  are  not  satisfied  that  any  sound  principle  of  law  or  equity 
will  discharge  either  from  the  legal  obligation  he  assumes  on  the  I 
face  of  the  instrument  to  contribute  his  proportion  on  default  of/' 
the  chief  obligor.  \  Indeed,  the  adoption  of  such  a  rule  would  be, 
in  this  state,  contrary  to  the  prevailing  practice  and  understanding  of 
parties  to  such  contracts  and  most  disastrous  in  its  consequences. 
Few  officials  present  their  bonds  in  person  for  execution  by  their 


O 


656  RIGHT   OF    CONTRIBUTION 

friends  as  their  sureties;  but  the  bond  is  executed  at  the  request 
of  a  mutual  friend ;  and  no  one  has  supposed  that  in  case  of  loss  the 
liability,  as  between  the  sureties,  must  rest  upon  that  friend,  who 
has  simply  been  most  active  in  the  promotion  of  a  common  object. 

In  our  opinion,  therefore,  the'  averments  of  the  sixth  paragraph 
of  the  answer  were  not  sufficient  to  constitute  a  defense  to  the  ac- 
tion, and  the  demurrer  was  properly  sustained. 

Judgment  affirmed,  with  two  per  cent,  damages  and  costs. 

See  also  McKee  v.  Campbell,  27  Mich.  497. 

_ 


SECTION  3.   WHEN  THE  RIGHT,  ARISES 


DA  VIES  v.  EVAN  HUMPHRIES/ 


6M.  &  W.  153  (1840) 

Parke,  B. :  This  was  an  action  by  the  plaintiff  against  the  de- 
fendant, his-  cosurety  on  a  promissory  note,  dated  the  27th  of  Oc- 
tober, 1827,  for  the  sum  of  £300,  with  interest,  to  recover  a  moiety 
of  the  whole  amount  which  he  had  paid  to  the  payeej  A  rule 
granted  in  this  case,  as  well  as  one  which  was  granted  in  another 
action  on  same  note  against  the  principal,  was  argued  in  the  Sit- 
tings after  Trinity  Term.  In  the  course  of  the  last  Term,  the  court 
disposed  of  the  rule  in  the  latter  action,  and  one  of  the  questions  in 
this  having  reserved  for  further  consideration  the  question,  at  j 
n  whal  time  the  right  of  one  cosurety  to  sue  the  other  for  contribu- 
tion arises. 

This   right   is    founded   not   originally   on   contract,   but   upon   a 
principle  of  equity,  though  it  is  now  established  to  be  the  founda- 
tion of  an  action,  as  appears  by  the  cases  of  Cowell  v.  Edward,  2 
B.  &  P.  269,  and  Craythorne  v.  Swinburne,   14  Ves.   164;  though 
Lord  Eldon  has,  and  not  without  reason,  intimated   some   regret 
that  the  courts  of  law  have  assumed  a  jurisdiction  on  this  subject, 
on  account  of  the  difficulties  in  doing  full  justice  between  the  par- 
ties.    What  then  is  the  nature  of  the  equity  upon  which  the  right] 
of  action  depends?     Is  it  that  when  one  surety  has  paid  any  part 
of  the  debt,  he  shall  have  a  right  to  call  on  his  cosurety  or  cosure-  h£/— . 
ties  to  bear  a  proportion  of  the  burden,  or  that,  when  he  has  paid)  & 
more  than  his  share,  he  shall  have  a  right  to  be  reimbursed  what- 
ever he  has  paid  beyond  it?    Or  must  the  whole  of  the  debt  be  paid  j  // 
by  him  or  some  one  liable,  before  he  has  a  right  to  sue  for  contri-    ] 
bution  at  all?     We  are  not  without  authority  on  this  subject,  and/ 
it  is  in   favour  of  the  second  of  these  propositions,  Lord  Eldon,1 
in  the  case  of  Ex  parte  Gifford,  6  Ves.  805,  states,  that  sureties 


A.  > 


WHEN    THE   RIGHT   ARISES  DO/ 

stand  with  regard  to  each  other  in  a  relation  which  gives  rise  to 
this  right  among  others,  that  if  one  pays  more  than  his  proportion,  f 
there  shall  be  a  contribution  Tor  a  proportion  of  the  excess  beyond 
the  proportion  which,  in  all  events,  he  is  to  pay :  and  he  expressly 
says;  "that  unless  one  surety  should  pay  more  than  his  moiety,  he 
would  not  pay  enough  to  bring  an  assumpsit  against  the  other." 
And  this  appears  to  us  to  be  very  reasonable,  for,  if  a  surety  pays 
a  part  of  the  debt  only,  and  less  than  his  moiety,  he  can  not  be  en- 
titled to  call  on  his  cosurety,  who  might  himself  subsequently  pay 
an  equal  or  greater  portion  of  the  debt;  in  the   former  of  which 
cases,  such  cosurety  would  have  no  contribution  to  pay,  and  in  the 
latter  he  would  have  one  to  receive.     In  truth,  therefore,  until  one"7 
has  paid  more  than  his  proportion,  either  of  the  whole  debt,  or  of  / 
that  part  of  the  debt  which  remains  unpaid  by  the  principal,  it  is  7 
not  clear  that  he  ever  will  be  entitled  to  demand  anything  from  the) 
other;  and  before  that,  he  has  no  equity  to  receive  a  contribution, 
and  consequently  no  right  of  action,  which  is  founded  on  the  equity 
to  receive  it.     Thus,  if  the  surety  more  than   six  years  before  the 
action,  have  paid  a  portion  of  the  debt,  and  the  principal  has  paid 
the  residue  within  six  years,  the  Statute  of  Limitations  will  not 
run  from  the  payment  by  the  surety,  but  from  the  payment  of  the 
residue  by  the  principal,  for  until  the  latter  date  it  does  not  appear 
that  the  surety  has  paid  more  than  his  share.    The  practical  advan- 
tage of  the  rule  above  stated  is  considerable,  as  it  would  tend  to 
multiplicity  of  suits,  and  to  a  great  inconvenience,  if  each  surety 
might  sue  all  the  others  for  a  ratable  proportion  of  what  he  had 
paid,  the  instant  he  had  paid  any  part  of  the  debt.     But,  whenever 
it  appears  that  one  has  paid  more  than  his  proportion  of  "what  the  /. 
sureties  can  ever  be  called  upon  to  pay,  then,  and  not  till  then,  it 
is  aIso~cIear"that  such  part  ought  to  be  repaid  by  the  others,  and> 
the^action  will  lie  for  it.     It  might,  indeed,  be  more  convenient  to 
require  that  the  whole  amount  should  be  settled  before  the  sureties 
should  be  permitted  to  call  upon  each  other,  in  order  to  prevent 
multiplicity   of   suits;    indeed,    convenience   seems   to    require   that 
courts  of  equity  alone  should  deal  with  the  subject ;  but  the  right 
of  action  having  been  once  established,  it  seems  clear  that  /when  a 
surety  has  paid  more  than  his  share,  every  such  payment  ought  to 
he  reimbursed  by  those  who  have  not  paid  theirs,  in  order  to  place 
him  on  the  same  footing/    If  we  adopt  this  rule,  the  result  will  be, 
that  here,  the  whole  of  what  the  plaintiff  had  paid  within  six  years 
will  be  recoverable  against  the  defendant,  as  the  plaintiff  had  paid 
more  than  his  moiety  in  the  year  1831;  and  consequently  the  rule 
must  be  absolute  to  increase  the  amount  of  the  verdict  from  £15 
j  to  £30. 
\     Rule  accordingly. 

;    Accord :    Camp  v.  Bostwick,  20  Ohio  St.  337,  5  Am.  Rep.  669. 
42— De  Witt. 


658  RIGHT    OF    CONTRIBUTION 


BOUTIN  ET  AL,  RESPONDENTS,  v.  ETSELL,  APPEL- 
LANT 

110  Wis.  276,  85  N.  W.  964  (1901). 


One  Alonzo  Knight  was  elected  county  treasurer  of  Rayfield 
county  for  the  term  commencing  January,  1899.  He  executed  a 
bond,  with  the  plaintiffs,  defendant  and  the  others  as  sureties,  to 
the  county,  and  entered  upon  the  discharge  of  his  duties.  During 
his  term,  Knight  became  a  defaulter,  and  thereafter  an  action  was 
commenced  on  his  bond  against  his  sureties.  Service  was  made  on 
seven  of  the  sureties,  including  the  plaintiffs  herein.  Fpur,  includ- 
ing the  defendant,  were  not  found,  and  did  not  appear.  The  others 
interposed  a  defense  in  good  faith,  rind  employed  counsel.  Judg- 
ment was  docketed  against  them  February  1,  1897,  for  $6,673.62. 
Afterward  the  plaintiffs  in  this  action  secured  a  compromise  with 
the  county,  and  paid  $2,000  and  took  an  assignment  of  the  judg- 
ment. They  also  paid  over  $388.50  for  counsel  fees  and  expenses 
in  defending  the  action  and  securing  the  compromise.  They  bring 
this  action  against  the  defendant  to  compel  him  to  pay  one-fifth  of 
the  amount  so  paid  by  them  upon  the  compromise,  and  for  counsel 
fees,  and  expenses,  claiming  that  the  other  sureties  are  either  with- 
out the  state  or  insolvent.  The  foregoing  facts  appear  in  the  com-  I 
plaint.  For  answer,  the  defendant  admitted  the  execution  of  the 
bond,  the  commencement  of  suit,  the  judgment  and  compromise  as  i^ 
stated,  and  denied  the  other  allegations.  He  also  set  up  that  two 
of  the  sureties,  Nourse  and  McCamis,  were  dead,  and  had  personal 
representatives  within  Bayfield  county.  The  case  was  tried  by  the 
court  with  a  jury.  After  the  evidence  was  in,  the  parties  stipulated 
that  the  only  question  that  would  be  submitted  to  the  jury  was  as 
to  the  alleged  insolvency  of  the  sureties,  and  of  the  estates  of  those' 
shown  to  be  dead ;  the  other  questions  to  be  determined  by  the 
court.  By  a  special  verdict,  the  jury  found  the  issue  of  insolvency 
as  claimed  by  plaintiffs.  The  court  made  findings  for  plaintiffs, 
and  directed  judgment  for  plaintiffs  for  $477.70,  and  interest  from  • 
December  10,  1897.  From  this  judgment  the  defendant  takes  this 
appeal. 

Bardeen,  J. :  A  number  of  objections  to  the  validity  of  the 
judgment  as  raised  by  defendant,  which  will  be  considered  as  pre- 
sented. 

1.  He  first  raises  the  question  whether  this  is  an  action  at  law 
or  in  equity.  The  complainant  states  a  plain  cause  of  action  at 
law.  It  was  so  treated  by  the  parties  on  the  trial,  and  will  so  be 
considered  here.  v 

2.  Next  it  is  claimed  that  there  were  eleven  sureties,  and  the 
facts  show  that  plaintiffs  have  not  paid  more  than  their  propor- 


/'  WWFX     THK    RTGTTT    ARISES  DJ^ 


WHEN    THE    RIGHT    ARISES 


tionate  share  of  the  original  judgment.  This  contention  ignores 
the  fact  of  the  compromise.  The  ultimate  liability  of  all  the  sure- 
ties to  the  county  was  fixed  at  $2,000,  which  was  paid  by  the  four 
plainTiffs.  The  compromise  was  one  which  resulted  to  the  benefit  of 
aitThVsrireties,  and,  for  the  purposes  of  this  action,  must  be  con- 
sidered as  the  basis  of  individual  liability.  The  liability  of  a  surety 
to  contribute  to  one  who  has  paid  more  than  his  share  of  the  com- 
mon debt  is  one  that  is  now  recognized  and  enforced  both  at  law 
and  in  equity.  It  rests  upon  equitable  grounds,  and  appeals  to  the  < 
conscience  of  the  judge  and  the  chancellor  alike.  The  time  was 
that  the  paying  surety  in  an  action  could  only  recover  from  his  co- 
surety an  aliquot  part  of  the  whole  debt ;  regard  being  had  to  the 
number  of  sureties,  and  without  regard  to  the  insolvency  or  non- 
.  residence  of  any  of  them.  The  consideration  before  mentioned  in-  ^ 
Iduced  a  modification  of  this  rule,  so  that  it  may  be  said  to  be  - 
established  law  in  this  state,  as  well  as  others,  that. /when  one  surety  ^ 
has  paid  the  whole  debt,  he  may  compel  contribution  from  such 
of  Ins  cosureties  as  arc  solvent  and  within  the  state.  Smith  v.  Ma- 
son, 44  Nebr.  610;  Stallworth  v.  Preslar,  34  Ala.  505;  Werborn's 
Admr.  v.  Kahn,  93  Ala.  201;  Faurot  v.  Gates,  86  Wis.  569;  Har- 
den v.  Carroll,  90  Wis.  350. 

3.  Another  objection  is  that  no  recovery  should  have  been  al- 
lowed for  attorney's  fees  paid  in  defense  of  the  suit  and  securing^ 
a  compromise.  There  is  no  claim  that  such  fees  are  unreasonable, 
or  that  they  were  imprudently  incurred,  or  that  they  were  not  in- 
curred for  the  common  benefit.  On  the  contrary,  it  sufficiently  ap- 
pears that  the  plaintiffs  acted  as  prudent  men  would  have  acted 
under  the  circumstances,  and  that  such  action  resulted  in  a  substan- 
tial benefit  to  all  of  the  sureties.  The  following  authorities  jus- 
tify the  allowance  of  such  fees  and  expenses:  Backus  v.  Coyne, 
45  Mich.  584;  Marsh  v.  Harrington,  18  Vt.  150;  Fletcher  v.  Jack- 
son, 23  Vt.  581 ;  Gross  v.  Davis,  87  Tenn.  226 ;  4  Am.  &  Eng.  Ency.  - 
of  Law  3,  and  note ;  1  Brandt  Suretyship  &  G.  283.  We  are  re- 
ferred to  the  case  of  Shepard  v.  Pebbles,  38  WTis.  374,  as  sustaining 
the  defendant's  contention.  It  was  a  case  for  contribution,  and  the 
writer  of  the  opinion  makes  use  of  the  following  language : 

"But  we  do  not  understand  that  the  right  to  contribution  extended 
to  the  costs  incurred  by  the  plaintiff,  or  paid  by  him,  in  the  action 
brought  in  the  circuit  court.  It  does  not  appear  that  the  defendant 
authorized  the  payment  of  those  costs,  or  agreed  in  any  way_  to  be 
liable  for  his  share  of  them,  and  there  is  no  special  count  in  the 
complaint  which  would  warrant  any  evidence  to  show  that  he  was 
responsible  for  them." 

There  are,  no  doubt,  cases  when  the  expense  incurred  by  a  surety 
should  not  be  allowed,  and  possibly  the  situation  was  such  in  the 
case  referred  to  as  to  justify  that  conclusion.  An  inspection  of 
the  case  and  briefs  on  file,  and  of  the  facts  stated  in  the  opinion, 


660  RIGHT    OF    CONTRIBUTION 

fails  to  disclose  the  exact  ground  of  the  decision,  any  further  than 
is  disclosed  by  the  language  used.  If  the  decision  is  made  to  rest 
upon  the  fact,  that  no  foundation  for  the  recovery  was  laid  in  the 
complaint,  there  is  seeming  justification  for  it.  Otherwise  it  would 
seem  to  stand  upon  dubious  ground.  Since  the  decision  in  Faurot/ 
v.  Gates,  supra  Xthereis  no  good  reason  for  saying  that,  in  actions/ 
,  of  this  kind,  reasonable  attorney's  fees,  prudently  incurred  foy 
/  the  common  benefit  of  the  sureties,  may  not  be  recove_red/ 

4.  Another  objection,  somewhat  feebly  suggested,  is  that  the  evi- 
dence does  not  sustain  the  jury's  finding  as  to  the  insolvency  of 
the  estates  of  several  of  the  deceased  sureties.  The  evidence  is  not 
referred  to  or  discussed  by  counsel.    There  is  at  least  some  evidence 

.  in  the  record  to  support  the  conclusion  reached,  and,  counsel  not 
deeming  the  point  of  sufficient  importance  to  point  out  its  weakness, 
we  shall  hold  it  sufficient. 

5.  The  last  objection  urged  is  that  there  was  no  evidence  that 
Alonzo  Knight,  the  principal  on  the  bond,  was  insolvent.  A  com- 
plete answer  to  this  position  is  that,  this  being  an  action  at  law,  no 
such  evidence  or  finding  was  necessary.  Thus,  it  is  said  in  1  Brandt ! 
Suretyship  &  G.  290:  '|Tn  an  action  at  law  by  a  surety  against  his 
cosurety  for  contribution,  the  weight  of  authority  seems  to  be  that 

^y  J  the  insolvency  of  the  principal  need  not  be  averred  or  proved.\'   See 
|  a4so,  to  the  same  effect,  Smith  v.  Mason,  44  Nebr.  610 ;  Goodall  v. 


Went  worth,  20  Maine  322;  Rankin  v.  Collins,  50  Ind.  158;  Sloo 
v.  Pool,  15  111.  47. 

By  the  court :     The  judgment  is  affirmed. 


BUSHNELL,  RESPONDENT,  v.  BUSHNELL  ET  AL.,  AP- 
PELLANTS 

77  Wis.  435,  46  N.  W.  442,  9  L.  R.  A.  411  (1890). 

Cole,  C.  J. :  This  is  an  action  by  a  paying  surety  against  a  co- 
surety for  contribution.  Cross-appeals  from  the  judgment  were 
taken,  and  the  questions  arising  will  be  considered  without  special 
reference  to  the  case  in  which  they  relate.  The  main  question  i$ 
presented  on  the  finding  of  the  court  below  that  the  plaintiff  is  the 
owner  and  holder  of  the  note  mentioned  in  the  evidence,  which  was 
signed  by  the  parties  to  the  action  as  sureties  for  their  brother, 
Levi  N.  The  note  drew  interest  at  the  rate  of  ten  per  cent.,  and  sev- 
eral payments  were  made  upon  it  from  time  to  time  by  the  plain- 

*A  few  jurisdictions  hold  that  the  insolvency  of  the  principal  is  a  condition 
precedent  to  the  right  of  a  surety  to  maintain  an  action  for  contribution. 
Rainey  v.  Yarborough,  37  N.  Car.  249,  38  Am.  Dec.  681 ;  Hall  v.  Gleason,  158 
Ky.  789,  166  S.  W.  608. 


r\ 


- 

WHEN    THE    RIGHT   ARISES  OOl 

tiff.  As  to  these  payments  the  six  years  bar  of  the  statute  of  lim- 
itations was  interposed,  which  the  court  sustained  as  to  all  pay- 
(ments  except  the  one  for  $98,  made  January  29,  1880.  As  to  that 
payment  the  circuit  court  held  the  plaintiff  was  entitled  to  recover 
the  full  amount  thereof,  with  ten  per  cent,  interest  from  the  time 
it  was  paid,  and  that  the  action  was  barred  as  to  the  other  payments. 

The  first  question  which  will  be  considered  is,  /was  the  six  years 
statute  of  limitations  applicable  to  the  first  six  years  payments  ' 
made  upon  the  note  by  the  plaintiff?  It  is  said  by  defendants' 
counsel  that  this  action  for  contribution  between  sureties  is  founded 
upon  an  implied  contract  to  contribute,  and  that  a  right  of  action  /£*/ 
accrues  against  the  cosurety  on  each  separate  payment  when  made, 
when  it  is  more  than  the  equal  share  of  the  debt  which  the  paying 
surety  is  bound  to  pay ;  and  he  says  the  case  comes  strictly  within 
the  limitation  of  subd.  3,  §  4222,  R.  S.,  which  bars  an  action  upon 
an  obligation  or  liability,  express  or  implied,  in  six  years,  except 
those  mentioned  in  the  last  two  preceding  sections.  The  decisions 
of  the  questions  presented  is  clear  upon  the  authorities.  Says  Mr. 
Justice  Story :  "Originally  it  seems  to  have  been  questioned  whether 
contribution  between  sureties,  unless  founded  upon  some  positive 
contract  between  them  incurring  such  liability,  was  a' matter  capable 
of  being  enforced  at  law.  But  there  is  now  no  doubt  that  it  may  be 
enforced  at  law  as  well  as  in  equity,  although  no  such  contract 
exists.  And  it  matters  not,  in  case  of  a  debt,  whether  the  sureties 
are  jointly  and  severally  bound,  or  only  severally ;  or  whether  their 
suretyship  arises  under  the  same  obligation  or  instrument,  or  un- 
der divers  obligations  or  instruments,  if  all  the  instruments  are  for 
the  same  identical  debt."  1  Story  Eq.  Jur.  495.  In  Davies  v. 
Humphreys,  6  Mees.  &  W.  153,  Baron  Parke  says  the  action  for 
contribution  arises  upon  a  principle  of  equity,  though  it  is  now 
established  to  be  the  foundation  of  an  action  at  law,  and  this  is 
generally  the  language  of  the  cases  upon  the  subject. 

The  result  of  this  view  would  seem  to  be,  that  the  plaintiff's  right 

of  action  upon  the  liability  of  the  cosurety  is  limited  to  the   six 

years  from  the  time  he  pays  the  creditor  more  than  his  proportion 

of  the  debt.  Angell  thus  states  the  rule,  and  such  is  the  doctrine  of  the 

adjudications.    Ang.  Lim.  131  et  seq. ;  Davies  v.  Humphreys,  supra; 

Scott  v.  Nichols,  61  Am.  Dec.  503,  and  authorities  referred  to  in 

|the  note.     When  a  note  payable  by  instalments  is  paid  by  a  surety, 

/the  statute  begins  to  run  against  him  from  the  time  he  pays  each 

( instalment.     Bullock  v.  Campbell,  9  Gill  182.     It  seems  to  be  clearly 

established  that,  |where  a  surety  has  paid  more  than  his  share  of 

the  debt,  every  such  payment  gives  a  right  of  action  for  contribu-- 

tion,  and  as  a  matter  of  course,  the  six  years  statute  begins  to  run 

upon  it; 

But  it  is  said  the  case  comes  within  the  ten  years  limitation  pro- 
vided for  in  subd.  4,  §  4221,  R.  S.     That,  in  effect,  makes  actions 


5 


662  RIGHT   OF    CONTRIBUTION 

cognizable  in  a  court  of  chancery,  where  no  other  limitation  is 
prescribed  in  the  chapter,  subject  to  that  period  of  limitation.  In 
answer  to  this  suggestion,  we  observe  that  this  is  a  plain  action  at 
law,  in  which  a  judgment  for  a  specified  sum  is  demanded.  This 
is  the  only  relief  or  matter  asked  for  in  the  action.  The  statute  in 
respect  to  a  legal  action  applies  to  it.  These  statutes  are  clear  and 
explicit,  and  bar  an  action  founded  upon  an  obligation  or  liability, 
express  or  implied,  which  is  not  brought  within  six  years  from  the 
time  the  right  of  action  accrues.  It  is  said  that  a  court  of  equity 
would  take  jurisdiction  to  enforce  contribution,  therefore  the  limi- 
tation of  subd.  4,  §  4221,  applies.  Whether  this  position  is  sound 
or  not  we  shall  not  determine.  It  is  sufficient  now  to  say  that 
this  is  not  an  equitable  suit  to  enforce  contribution,  and  no  equita-  \ 
ble  relief  is  sought.  It \is  a  legal  action  to  recover  money  paid  to 
the  use  of  the  defendant  and  stands  upon  the  same  footing  as  any 
other  action  founded  upon  an  implied  contract. 

The  plaintiff  paid  the  greater  portion  of  the  note,  indeed,  much 
more  than  his  share.  The  principal  debtor  paid  the  plaintiff  some 
money,  and  transferred  to  him  some  property.  The  court  applied 
these  several  payments  and  the  value  of  the  property  to  reim- 
burse the  plaintiff  for  the  excess  he  had  paid  more  than  his  share. 
We  see  no  error  nor  injustice  in  such  an  application  The  aggre- 
gate of  these  payments,  increased  by  the  value  of  the  property,  is 
much  less  than  the  amount  the  plaintiff  has  paid  for  his  cosurety. 
It  is  therefore  proper  not  to  require  the  plaintiff  to  account  for 
them  under  the   circumstances. 

It  was  also  correct  to  give  the  plaintiff  judgment  for  the  amount 
of  the  last  payment,  for,  as  we  have  said,  he  had  already  paid 
largely  in  excess  of  his  proportion,  and,  if  the  defendant  pays  the 
entire  amount  of  the  last  payment  made  on  the  note,  he  will  still 
fall  short  of  paying  his  share  of  the  debt.  But  there  is  an  error 
in  giving  interest  on  the  last  payment  exceeding  seven  per  cent. 
Interest  at  ten  per  cent,  was  given,  doubtless  because  the  note  drew 
interest  at  that  rate.  But  the  recovery  is  upon  an  implied  contract 
for  money  paid  to  the  defendant's  use,  and  not  upon  the  note  nor 
upon  the  guardian's  bond.  The  note  and  bond  are  paid  and  ex- 
tinguished. The  rate  of  interest  on  the  amount  of  the  recovery 
should  be  the  legal  rate,  and  no  more.  The  counsel  for  defendant 
claims  that  there  was  not  $98  due  on  the  note  when  the  last  pay- 
ment was  made.  We  have  made  no  computation,  and  shall  not.* 
The  plaintiff  is  entitled  to  recover  only  what  was  due  when  the 
note  was  discharged,  with  legal  interest  on  the  same.  The  circuit 
court  will  enter  judgment  for  the  proper  amount,  as  indicated  in 
this  opinion. 

Accord :    Neilson  &  Churchill  v.  Fry,  16  Ohio  St.  552,  91  Am.  Dec.  110. 


EQUITABLE    BEFORE    PAYMENT 


663 


SECTION  4.  EQUITABLE  CONTRIBUTION  BEFORE 

... 


PAYMENT 

wolmer£hausen  v.  GULLICK 


L.  R.  2  Ch.  Div.  514  (1893). 

The  plaintiff  was  the  widow  and  executrix  of  George  Wolmers- 
hausen,  whose  estate  was  being  administered  by  the  court,  and  this 
action  was  brought  by  leave  of  the  court  against  Thomas  Guljick 
and  Tohn  Patton  as  cosureties  with  the  deceased  for  contribution. 
LTTS/TWolmershausen,  Gullick  and  Patton  were  directors  of  the 
original  Hartlepool  Colleries  Company,  Limited,  which  became  in- 
solvent, and  was  afterward  wound  up.  In  July,  1871,  the  com- 
pany borrowed  from  its  bankers,  Messrs.  Barclay,  Bevan  &  Co.,  < 
j  £25,000,  and  on  the  29th  of  July,  Wolmershausen,  Gullick  and  Pat- 
i  ton,  and  two  other  directors,  who  subsequently  became  insolvent, 
gave  to  the  bankers  a  joint  and  several  promissory  note  for  the 
amount  of  the  loan  as  sureties  for  the  company.  On  the  21st  of 
January,  1874,  these  five  directors,  as  such  sureties,  gave  a  further 
joint  and  several  promissory  note  to  the  bankers  for  £10,000.  Wol- 
mershausen died  in  May,  1879,  and  an  action  for  the  administra- 
tion of  his  estate  was  commenced  in  the  following  July.  IrL  Oc-  i 
tober,  1879,  the  bankers  gave  notice  of  a  claim  against  the  estate 
of  the  deceased  for  £6,000,  the  balance  alleged  to  be  due  to  them 
upon  the  two  promissory  notes  after  allowing  payments  to  the  ex- 
tent of  £23.500  and  £5,500  on  the  said  two  notes  respectively.  The 
pla+nt1fr~Tesi steel'  the  claim,  and  applied  for  leave  to  bring  in  the  co- 
sureties under  the  third  party  procedure;  but  the  application  was 
refused,  and  there  was  no  evidence  that  the  defendants  had  any 
notice  of  it.  The  claim  was  finally  adjudicated  upon  on  the  26th  of 
March,  1890,  by  Mr.  Justice  Stirling.  His  Lordship  disallowed  the 
claim  to  the  extent  of  £1,500,  the  balance  alleged  to  be  due  on  the 
first  note,  but  allowed  it  to  the  extent  of  £4,500,  the  balance  on  the 
second  note,  with  interest,  after  deducting  therefrom  a  sum  of  £70 
as  the  estimated  amount  which  the  bankers  might  have  recovered 
A  from  the  trustee  in  bankruptcy  of  another  cosurety.  The  plaintiff 
had  not  as  yet  paid  any  part,  of  this  sum.  The  plaintiff  claimed  a 
declaration  that  the  defendants  were  jointly  and  severally  liable 
to  contribute  with  the  plaintiff  to  the  discharge  of  the  principal  debt, 
and  an  order  upon  the  defendants  respectively  to  contribute  with 
the  plaintiff  to  pay  to  Messrs.  Barclay,  Bevan  &  Co.  the  amount 
of  their  debt,  or,  in  the  alternative,  an  order  upon  them  to  indem- 
nify the  plaintiff  against  any  sums  which  she  might  pay  to  Messrs. 
Barclay,  Bevan  &  Co.  in  excess  of  her  proper  share.     The  defend- 


664  RIGHT   OF    CONTRIBUTION 

ant  Gullick  pleaded  that  the  action  was  not  maintainable,  as  th 
plaintiff  has  not  paid  anything  in  respect  of  the  debt,  The  defend- 
ant Patton  pleaded  that  in  1887  he  had  entered  into  a  scheme  of  ar- 
rangement with  his  creditors  under  the  Bankruptcy  Act,  1883,  and 
that  under  that  scheme  20s.  in  the  pound  had  been  paid  to  all  cred- 
itors who  had  proved  their  debts,  and  that  such  scheme  was  a  bar  ' 
to  the  plaintiff's  claim.  No  claim  was  made  under  the  bankruptcy 
proceedings  against  the  debtor  in  respect  of  his  unascertained  lia- 
bility to  contribution,  nor  was  such  liability  included  by  the  debtor 
in  his  statement  of  liabilities.  The  defendants  also  pleaded  the 
Statute  of  Limitations. 

Wright,  J. :  This  case  raises  an  important  question  with  respect 
to  which  there  is  a  remarkable  absence  of  express  authority.  The 
plaintiff  is  the  executrix  of  a  person  who  became  surety  with  four 
others  for  a  large  sum  of  money  advanced  by  a  bank  to  a  com-, 
pany.  The  surety's  estate  is  being  administered  in  the  court,  and 
the  bankers  put  in  a  claim  as  creditors  for  the  whole  amount  of  the 
guarantee.  The  plaintiff  resisted  the  claim  and  succeeded  in  re-' 
ducing  it  from  £6.000,  but  it  has  been  finally  allowed  for  a  sum 
of  about  £4,500.  The  plaintiff  is  now  called  upon  to  pay  that  sum, 
and  brings  this  action  against  cosureties  for  contribution.  The], 
plaintiff  has  not  yet  paid  anything.  One  defendant  I  have  dis- 
missed from  the  action  on  the  ground  that  he  is  discharged  by  a 
composition  under  section  18  of  the  Bankruptcy  Act,  1883,  inas- 
much as  it  appears  to  me  that  his  liability  to  contribute,  although 
not  ascertained  at  the  time  of  the  bankruptcy  proceedings,  nor  in- 
cluded in  his  schedule  of  liabilities  or  in  the  claims  or  proofs,  and 
not  a  debt  in  which  respect  of  which  an  adjudication  of  bankruptcy 
could  have  been  sustained,  was  a  liability  within  the  meaning  of 
section  37  of  the  act,  therefore  a  debt  provable  in  the  bankruptcy: 
Hardy  v.  Fothergill  (4),  13  App.  Cas.  351.  _     _   . 

The  principal  defense  of  the  other  defendant  is  that  the  plaintiff 
is  not  entitled  to  maintain  this  action  until  she  has  paid  more  than 
her  proportion,  or  at  any  rate  until  she  has  paid  her  proportion. 
The  plaintiff  is  willing  to  pay  her  proportion,  but  she  insists  that 
the  actual  payment  of  it  is  not  a  conjjtjoji^^recexknt  to  her  right 
to  sue,  and  says  that  at  any  rate  she  is~not  obliged  to  pay  the  whole 
in  the  first  instance  and  then  sue  for  reimbursement.  If  she  is 
obliged  to  pay  the  whole  before  actual  contribution  from  the  co- 
surety, the  business  in  which  the  testator's  assets  are  invested  wilL 
be  embarrassed  by  the  withdrawal  of  so  much  of  the  capital  even 
for  a  short  time.  Obviously  if  a  man  were  surety  with  nine  others 
for  £10,000,  it  might  be  a  ruinous  hardship  if  he  .were  compelled 
to  raise  the  whole  £10,000  at  once  and  perhaps  to  pay  interest  on 
the  £9,000  until  he  could  recover  the  £9,000  by  actions  or  debtor 
summonses  against  his  cosureties. 

The  questions  are  whether  the  action   can  be   maintained,   and 


EQUITABLE    BEFORE    PAYMENT 


665 


what  is  the  precise  extent  of  the  relief  (if  any)  which  can  be  given. 
By  the  Roman  Law  as  it  stood  in  the  time  of  Justinian,  sureties 
had,  generally  speaking,  a  right  to  compel  the  creditor  to  enforce 
payment  against  them  pro  rata  only.  The  superior  courts  of  com- 
mon law  in  this  country  have  never  entertained  any  action  for  con- 
tribution by  a  surety  against  his  cosurety,  except  the  action  for 
money  paid,  and  from  the  time  of  Davies  v.  Humphreys,  6  M. 
&  153,  which  was  decided  in  the  year  1840,  it  has  been  treated 
as  settled  law  that  the  [surety  jcan-r^t- -ma4n4a4n^his_  action  until 
he  has  actually.^paid-  more  than  hJ3  own  proportion,  -because  the 
action  assumes  a  debt  due  and  payable,  and  the  creditor  may  yet 
enforce  payment  of  the  whole  balance  from  the  cosurety.  Nor  did 
the-etynTT_'o1^corhmon  law  ever  give  in  the  case  of  cosureties  the 
equitable  relief  which  they  were  accustomed  to  give  in  many  other 
cases  of  joint  or  common  liability,  by  compelling  contribution  after 
judgment  and  before  execution  by  means  of  a  writ  of  audita 
querela  or  scire  facias  to  limit  the  creditor's  execution  to  the  proper 
share  payable  by  the  particular  defendant.  This  will  be  seen  from 
the  collection  of  ancient  cases  in  3  Rep.,  pages  12  and  following. 

By  the  custom  of  the  city  of  London  an  equitable  action  lay  in 
the  city  courts  by  a  surety  before  he  had  paid  anything  to  have  it 
ordered  that  he  and  his  cosureties  should  be  charged  pro  rata  only 
— "tit  uterque  eorum  oneretur  pro  rata ;"  Offley  and  Johnson's 
Case,  2  Leon.  168,  (26  Eliz). 

In  the  earliest  reports  and  abridgments  of  cases  in  Chancery, 
there  is  frequent  mention  of  contribution,  but  there  seems  to  be  noj 
reported  instance  of  contribution  between  sureties  before  the  17th 
century,  and  even  in  modern  times  there  is  very  little  express 
authority  that  the  surety  has  any  remedy  until  he  has  actually  paid 
too  much,  and  still  less  authority  to  show  the  precise  extent  of  the 
relief  to  which  he  may  be  entitled  before  such  payment.  In  nearly ^ 
e.very  reported  case  the  surety  had  before  action  paid  more  than 
his  share.  Nearly  every  case  and  text-book  refers  to  his  right  to 
contribution  as  the  right  of  a  surety  who  has  paid  more  than  his 
proportion.  In  a  few  cases  the  ambiguous  expression  is  used, 
"when  he  is  called  upon  to  pay  more  than  his  proportion." 

The  following  are,  I  believe,  the  only  reported  cases  which  throw 
any  light  on  the  subject.  I  begin  with  two,  which  are  not  cases  of 
suretyship,  but  which  illustrate  a  principle  of  equity  apparently 
established  in  other  cases  of  contribution  and  applicable  to  this. 
(They  are  cited  in  Vin.  Abr.,  tit.  Contribution,  from  Cary's  Re- 
ports). 

"(27.)  If  a  man  grants  a  rent-charge  out  of  all  his  lands,  after- 
ward sells  his  lands  by  parcels  to  divers  persons,  and  the  grantee 
of  the  rent  will  from  time  to  time  levy  the  whole  rent  upon  one  of 
the  purchasers  only,  he  shall  be  eased  in  chancery  by  a  contribution 


(566  RIGHT    OF    CONTRIBUTION 

from  the  rest  of  the  purchasers,  and  the  grantee  shall  be  restrained 
by  order  to  charge  the  same  upon  him  only." 

"(28.)  Sir  Edmund  Morgan  married  the  widow  of  Fortescue, 
he  had  his  wife's  lands  distrained  alone  by  the  grantee  of  a  rent 
charge  from  her  former  husband,  and  therefore  sued  the  grantee 
in  chancery,  to  take  a  ratable  part  of  the  rent,  according  to  the 
lands  he  held  subject  to  the  distress,  and  notwithstanding  the  Lord 
Chief  Justice  Popham's  Report,  who  thought  this  reasonable,  the 
Lord  Chancellor  Egerton  would  give  him  on  this  bill  no  relief,  but 
ordered  that  he  should  exhibit  his  bill  against  the  rest  of  the  ten- 
ants and  grantee  both,  the  one  to  show  cause  why  they  should  con- 
tribute, the  other  why  he  should  not  accept  of  the  rent  equally; 
otherwise  it  was  no  reason  to  take  away  the  benefit  of  the  distress 
from  the  grantee,  which  the  law  gave  him." 

Three  cases  of  contribution  between  sureties  in  the  time  of 
Charles  I  are  reported.  In  Peter  v.  Rich,  1  Ch.  Rep.  34,  the  princi- 
ple was  established  that  in  equity,  \if  one  of  the  several  cosureties 

lis  insolvent,  the  others  contribute  asTlf  he  had  not  been  a  surety. 

!  There  the  plaintiff  had  paid  the  whole.  In  Morgan  v.  Seymour, 
Ibid.  120,  the  principle  upon  which  the  above  cited  cases  from  Cary, 
and  the  subsequent  leading  cases  of  Deering  v.  Earl  of  Winchelsea, 
1  Coz.  318,  2  Bos.  &  P.  270,  was  decided  seems  to  be  applied  in 
the  fullest  extent  to  the  case  of  cosureties,  the  principal  creditor 
being  made  a  party  to  the  suit,  and  the  cosurety  being  ordered  to 
pay  direct  to  the  creditor.     The  report  is  as  follows : 

"The  plaintiff  with  Sir  Edward  Seymour,  the  defendant,  being 
bound  with  Sir  William  St.  Johns  for  the  proper  debt  of  the  said 
St.  Johns,  to  the  defendant  Rowland  in  a  bond  of  £200  for  the 
payment  of  ilOO,  and  the  said  Rowland  sued  the  plaintiff  only  on 
the  said  bond,  the  plaintiff  seeks  to  have  the  said  Seymour  con- 
tribute and  pay  his  part  of  the  said  debt  and  damages,  the  said 
St.  Johns  being  insolvent.  This  court  was  of  opinion,  that  the  said 
Seymour  ought  to  contribute  and  pay  one  moiety  to  the  said  Row- 
land, and  decreed  Rowland  to  assign  over  the  said  bond  to  the 
plaintiff  and  Seymour,  to  help  themselves  against  the  said  St.  Johns 
for  the  said  debt." 

In  Swain  v.  Wall,  1  Ch.  Rep.  150,  the  plaintiff  surety  had  paid 
the  whole  of  the  creditor's  demand,  and  the  only  point  decided  was 
that  his  claim  for  contribution  might  be  controlled  by  express  con- 
tract. In  Hale  v.  Harrison  (1673),  1  Ch.  Ca.  246,  Finch  15,  203, 
the  rule  in  Peter  v.  Rich  was  followed.  In  1786,  in  Lawson  v. 
Wright,  1  Cox  275,  the  plaintiff  cosurety  had  paid  off  the  whole 
liability,  and  he  sued  for  contribution.  Sir  Lloyd  Kenyo'n  said  that 
it  had  been  established  ever  since  the  origin  of  the  courts  of  Equity 
that  one  surety  had  a  right  to  call  upon  another  for  contribution 
in  cases  of  this  nature.  The  only  question  was  whether  proof  of 
payment  by  the  surety  was  enough  without  proof  that  the  principal 


EQUITABLE    BEFORE    PAYMENT  667 

debtor  was  insolvent.  The  arguments  seem  to  show  that  counsel 
and  the  court  thought  that  an  action  could  be  maintained  by  a  surety 
before  he  had  paid  anything,  if  he  could  prove  the  principal  debtor 
to  be  insolvent.  In  1787  the  leading  case  of  Deering  v.  Earl  of 
Winchelsea,  1  Cox  318,  2  Bos.  &  P.  270,  was  decided  in  the  Ex- 
chequer as  a  Court  of  Equity  by  Lord  Chief  Baron  Eyre.  There  a 
surety  by  bond  for  £4,000  to  the  Crown  had  had  judgment  against 
him  at  the  suit  of  the  Crown  for  nearly  the  whole  amount,  and  he 
filed  his  bill  for  contribution  against  sureties  bound  by  distinct 
bonds  to  the  same  creditor  to  secure  the  same  liability  of  the  same 
debtor,  and  the  only  point  reported  as  argued  or  decided  was 
whether  there  should  be  contribution  between  sureties  bound  under 
distinct  contracts  of  suretyship  without  privity  of  contract  between 
themselves.  After  deciding  that  the  right  to  contribution  depends 
primarily,  not  upon  contract,  but  upon  the  equitable  principle  that 
"in  equali  jure  the  law  requires  equality — the  charging  one  surety 
discharges  the  other,  and  each  ought  therefore  to  contribute  to  the 
onus,"  the  court  proceeded  to  declare  the  plaintiff's  right  to  con- 
tribution, and  ordered  the  other  sureties  to  pay  their  share  to  the 
creditor.  No  similar  order  is  to  be  found  in  any  other  case  of  sure- 
ties except  Morgan  v.  Seymour,  1  Ch.  Rep.  120.  But  it  is  in  strict 
accordance  with  the  principle  of  the  cases  cited  from  Cary,  and  it 
is  hardly  possible  to  suppose  that  so  obvious  and  important  a  mat- 
ter as  the  jurisdiction  to  make  such  an  order  could  have  been  over- 
looked. It  appears,  from  the  report  of  the  case  in  2  Bos.  and  P., 
though  not  from  the  report  in  1  Cox,  that  the  Crown  as  creditor 
was  made  a  defendant  to  the  bill  under  the  name  of  the  Attorney- 
General;  and  there  could  not  have  been  any  object  in  this  except 
that  the  Crown  should  be  controlled  and  prevented  from  enforcing 
its  legal  right  inequitably  against  one  alone  of  the  sureties.  That 
nothing  so  important  was  overlooked  may  be  inferred  from  the  re- 
markable observations  of  Lord  Eldon,  who  had  himself  argued  the 
case,  and  who  said,  in  Craythorne  v.  Swinburne  (1807),  14  Ves. 
160: 

"In  the  case  of  Deering  v.  Earl  of  Winche  sea,  1  Cox  318,  2 
Bos.  &  P.  270,  which,  I  recollect,  was  argued  with  great  persever- 
ance *  *  *  it  is  decided  that,  whether  they  are  bound  by  several 
instruments,  or  not,  whether  the  fact  is  or  is  not  known,  whether 
the  number  is  more  or  less,  the  principle  of  equity  operates  in  both 
cases ;  upon  the  maxim,  that  equality  is  equity :  the  creditor  who  can 
call  upon  all,  shall  not  be  at  liberty  to  fix  one  with  payment  of  the 
whole  debt ;  and  upon  the  principle,  requiring  him  to  do  justice,  if 
he  will  not,  the  court  will  do  it  for  him.  *  *  *  I  argued  that  case ; 
and  was  much  dissatisfied  with  the  whole  proceeding,  and  with  the 
judgment ;  but  I  have  been  since  convinced,  that  the  decision  was 
upon  right  principles.  Lord  Chief  Justice  Eyre  in  that  case  de- 
cided, that  this  obligation  of  cosureties  is  not  founded  in  contract/ 


668 


RIGHT    OF    CONTRIBUTION 


but  stands  upon  a  principle  of  equity ;  and  Sir  S.  Romilly  has  very 
ably  put,  what  is  consistent  with  every  idea,  that,  after  that  princi- 
ple of  equity  has  been  universally  acknowledged,  then  persons,  act- 
ing under  circumstances  to  which  it  applies,  may  properly  be  said 
to  act  under  the  head  of  contract,  implied  from  the  universality 
of  that  principle.  Upon  that  ground  stands  the  jurisdiction  as- 
sumed by  courts  of  law.  *  *  *  The  doctrine  of  contribution 
*  *  *  stands  upon  this ;  that  ( all  sureties  are  equally  liable  to 
the  creditor ;  and  it  does  not  rest  with  him  to  determine  upon  which 
the  burden  shall  be  thrown  exclusively ;  that  equality  is  equity ;  and 
if  he  will  not  make  them  contribute  equally,  this  court  will  finally, 
by  arrangement,  secure  that  object." 

Several  other  cases  of  contribution  between  sureties  occur  in  the 
books  in  Lord  Eldon's  time,  but  in  none  of  them  is  there  any  ref- 
erence to  the  point  in  question.  In  Ex  parte  Gifford  (1802),  6 
Ves.  805,  808,  Lord  Eldon  said : 

"The  principal  is  to  discharge  all  the  obligations  of  all  the  sure- 
ties ;  but  they  stand  with  regard  to  each  other  in  a  relation,  which 
gives  rise  to  this  right  among  others ;  that,  if  one  pays  more  than 
his  proportion,  there  shall  be  a  contribution  for  a  proportion  of 
the  excess  beyond  the  proportion,  which  in  all  events  he  is  to  pay." 

In  Craythorne  v.  Swinburne,  14  Ves.  160,  already  cited,  Lord 
Eldon  states  the  right  of  the  surety  in  these  terms:  "It  has  been 
long  settled,  that,\Tf  there  are  cosureties  by  the  same  instrument, 
and  the  creditor  calls  upon  either  of  them  to  pay  the  principal  debt, 
or  any  part  of  it,  that  surety  has  a  right  in  this  court,  either  upon 
a  principle  of  equity,  or  upon  contract,  to  call  upon  his  cosurety 
for  contribution.' 

In  Antrobus  v.  Davidson  (1817),  3  Mer.  569,  it  was  held  that 
the  creditor  can  not  bring  an  action  quia  timet  against  a  surety  to 
force  him  to  set  apart  money  to  provide  for  the  possibility  of  a 
debt  becoming  due  from  the  principal  debtor. 

In  1821,  in  Stirling  v.  Forrester,  3  Bli.  575,  590,  596,  in  the 
House  of  Lords,  Lord  Redesdale  said:  "The  principle  established 
in  the  caseof  Deering  v.  Earl  of  Winchelsea,  1  Cox  318,  2  Bos. 
&  P.  270,  is  universal,  that  the  right  and  duty  of  contribution  is 
founded  in  doctrines  of  equity;  it  does  not  depend  upon  contract. 
If  several  persons  are  indebted,  and  one  makes  the  payment,  the 
/creditor  is  bound  in  conscience,  if  not  by  contract,  to  give  to  the 
party  paying  the  debt  all  his  remedies  against  the  other  debtors. 
The  cases  of  average  in  equity  rest  upon  the  same  principle.  It 
would  be  against  equity  for  the  creditor  to  exact  or  receive  payment 
from  one,  and  to  permit,  and  by  his  conduct  to  cause,  the  other 
debtors  to  be  exempt  from  payment.  He  is  bound,  seldom  by  con- 
tract, but  always  in  conscience,  as  far  as  he  is  able,  to  put  the  party 
paying  the  debt  upon  the  same  footing  with  those  who  are  equally 
bound.    That  was  the  principle  of  decision  in  Deering  v.  Lord  Win- 


EQUITABLE    BEFORE    PAYMENT  669 

chelsea.  *  *  *  The  question  depends  upon  equity,  not  upon 
contract ;  and  in  this  case  a  contract  is  to  be  implied.  The  decision 
in  Deering  v.  Lord  Winchelsea  proceeded  on  a  principle  of  law 
which  must  exist  in  all  countries,  that  where  several  persons  are 
debtors,  all  shall  be  equal." 

In  1861,  in  Reynolds  v.  Wheeler,  30  L.  J.  (C.  P.)  350,  10  C.  B. 
(N.  S.)  561,  which  was  an  action  for  money  paid,  Earle,  C.  J., 
said:  "If  one  surety  is  called  on  to  pay  the  whole  debt  he  is  enti- 
tled to  have  contribution  fromTiis  cosurety,"  and  Williams,"]'., 
said:  "It  is  now  well  established  by  many  cases  that  where  two 
parties  stand  in  the  relation  of  cosureties,  and  one  of  them  is  ap- 
plied to  for  more  than  his  share,  he  is  entitled  to  call  upon  his  com- 
panion for  reimbursement."  But.  having  regard  to  the  common 
law,  as  settled  by  Da  vies  v.  Humphreys,  6  M.  &  W.  153,  it  seems 
plain  that  these  expressions  must  be  understood  as  assuming  actual 
payment  by  the  plaintiff  of  more  than  his  share. 

In  1868,  in  Wooldridge  v.  Norris,  Law  Rep.  6  Eq.  410,  executors 
of  a  surety  obtained  an  order  for  indemnity  and  payment  by  a  per- 
son who  had  covenanted  to  indemnify  the  testator  against  his  lia- 
bility as  surety,  although  the  executors  had  not  paid  or  been  sued. 
The  judgment,  however,  proceeded  on  the  particular  terms  of  the 
covenant. 

In  the  same  year,  in  Cruse  v.  Paine,  Law  Rep.  6  Eq.  641,  4  Ch. 
441,  Vol  II,  1893,  where  a  vendor  of  shares  was  entitled  to  be  in- 
demnified by  his  vendee  against  calls,  Lord  Hatterly  declared  the 
liability  of  the  vendee  for  future  calls,  and  ordered  him  to  indem- 
nify the  vendor's  estate,  and  to  procure  its  release  or  discharge 
"either  by  payment  of  the  calls  or  otherwise,  with  liberty  to  apply 
in  Chambers,  &c."  _  • 

In  1872,  in  Bechervaise  v.  Lewis,  Law.  Rep.  7  C.  P.  372,  377      <; 
Willes,  J.,  said :     "The  surety,     *     *     *     as  soon  as  his  obligation^ 
to  pay  becomes  absolute,  has  a  right  in  equity  to  be  exonerated  byj 
his  principal." 

In  1874,  in  Lacey  v.  Hill,  Ibid.  18  Eq.  182,  191,  upon  a  creditor's 
claim  in  an  administration,  Jessel,  M.  R.,  said : 

"Whatsoever  may  be  the  case  at  law  *  *  *  it  is  quite  plain 
that  in  this  court  any  one  having  a  right  to  be  indemnified  has  a 
right  to  have  a  sufficient  sum  set  apart  for  that  indemnity.  It  is 
not  very  material  to  consider  whether  he  is  entitled  to  have  that 
sum  paid  to  him,  or  whether  it  must  be  paid  direct  over  to  the  cred- 
itor. If  the  creditor  is  not  a  party,  I  believe  that  it  has  been  de- 
cided that  the  party  seeking  indemnity  may  be  entitled  to  have  the 
monev  paid  over  to  him." 

In  "1877,  in  Lloyd  v.  Dimmack,  7  Ch.  D.  398,  Mr.  Justice  Fry 
refused  to  declare  prospectively  the  right  of  the  assignor  of  a  long 
lease  to  indemnity  against  future  breaches  of  covenant  by  the  as- 
signee,  and   in   Hughes-Hallett   v.    Indian    Mammoth    Gold    Mines 


.A-t  a 


670 


RIGHT   OF    CONTRIBUTION 


Company,  22  Ch.  D.  561,  565,  the  same  learned  judge  refused  to 
make  as  order  quia  timet  against  a  person  for  whom  the  plaintiff 
held  shares  to  indemnify  the  plaintiff,  there  being  no  evidence  that 
calls  were  likely  to  be  made,  but  said :  "There  have  been  un- 
doubtedly, cases  in  which,  where  a  contract  for  indemnity  existed, 
and  a  right  to  sue  upon  that  contract  had  arisen,  the  court  has  de- 
clared the  right  to  indemnity  generally,  and  has  put  matters  in  such 
a  train  that,  when  the  subsequent  right  to  indemnity  should  arise, 
the  indemnity  might  be  worked  out.  Some  forms  of  judgments  in 
that  class  of  cases  are  to  be  found  in  the  last  edition  of  Seton  on 
Decrees,  and  they  show  that  where  a  person  has  taken  shares  for 
another,  and  a  call  has  been  made  which  has  not  been  met  by  the 
person  liable  to  pay  it,  the  trustee  who  is  entitled  to  an  indemnity 
may  obtain  a  declaration  of  his  title  generally,  and  may  possibly 
obtain  liberty  to  apply  from  time  to  time  to  work  it  out."  So,  in 
the  similar  case  of  Hobbs  v.  Wayet,  36  Ch.  D.  256,  where  a  call 
on  shares  was  also  threatened,  Mr.  Justice  Kekewich  made  a  dec- 
laration of  the  right  of  indemnity. 

The  preceding  cases  from  Cruse  v.  Paine,  Law  Rep.  6  Eq.  641, 
4  Ch.  441,  downwards  have  been  referred  to,  not  as  having  any  di- 
rect bearing  on  the  rights  of  cosureties,  but  as  throwing  some  light 
on  the  nature  and  extent  of  the  relief  which  can  be  given  in  equity 
in  analogous  matters.  There  are  only  two  remaining  authorities. 
In  1881,  in  Ex  parte  Snowdon,  17  Ch.  D.  44,  46,  47,  a  surety  who 
had  paid  his  own  share  and  no  more,  and  who  had  not  been  called 
upon  to  pay  more,  issued  a  debtor's  summons  against  his  cosurety 
for  half  of  what  had  been  paid,  and  he  obtained  an  adjudication  of 
bankruptcy,  which  the  Court  of  Appeals  annulled  on  the  ground 
that,  until  a  surety  had  paid  more  than  his  share,  there  is  no  legal 
or  equitable  debt  to  sustain  bankruptcy  proceedings.  Lord 
Justice  James  is  reported  to  have  said:  "I  think  your  proper  rem- 
edy is  to  call  on  Snowden  to  pay  the  bank  £541.  *  *  *  I  believe 
the  proper  course  when  a  surety  is  called  upon  to  pay  a  part  of  the 
whole  debt  for  which  he  is  liable  would  be  to  bring  an  action  against 
his  cosureties  to  compel  them  to  contribute  to  pay  the  debt  to  the 
creditor,  just  as  he  would  be  entitled  to  call  on  them  for  contribu- 
tion if  he  had  been  sued  by  the  creditor,  asking  that  he  should  be 
indemnified  by  his  cosureties  against  paying  the  whole  debt,  or 
whatever  risk  he  ran."  The  report  in  the  Law  Journal,  50  L.  J. 
(Ch.)  540,  541,  is  as  follows:  "The  proper  course  when  a  surety  "| 
is  called  upon  to  pay  the  whole  debt,  for  which  he  is  liable  with  his 
cosurety,  is  to  call  upon  his  cosurety  for  contribution  and  to  in- 
demnify him  against  paying  the  whole;  and  the  only  mode  in  which 
in  equity  you  can  compel  a  cosurety  to  pay  his  proportion  of  the 
debt  is  to  show  that  you  have  paid  your  proportion,  or  more  than^ 
your  proportion,  of  the  debt,  and  are  liable  for  the  residue."  In 
the  Weekly  Reporter,  29  W.  R.  654,  it  is,   "The  proper  course 


EQUITABLE   BEFORE    PAYMENT  671 

where  a  surety  is  called  upon  to  pay  the  whole  debt  for  which  he 
is  liable  would  be  to  call  upon  his  cosureties  for  contribution,  just 
as  he  would  be  entitled  to  have  done  if  a  bill  had  been  filed  against 
him  by  the  principal  creditor,  asking  that  he  should  be  indemnified 
against  paying  the  whole."     In  1883,  in  Macdonald  v.  Whitfield,  8 
App.    Cas.   733,   750,   Lord   Watson,   pro   cur.,   declared   the    right 
to  contribution,  of  a  surety  who  had  not  paid,  but  had  had  judgment 
against  him,  in  this  form :    "Entitled  and  liable  to  equal  contribu- 
tion inter  se."     In  Lord  Justice  Lindley's  work  on  Partnership, 
5th  ed.,  p.  374,  it  is  observed  that  "before  the  passing  of  the  Juris- 
dicture  Acts,  a  right  of  contribution  or  indemnity,  arising  other- 
wise than  by  special  agreement,  was  only  en  forcible  at  law  by  a  i 
person    who   could   prove   that   he    had   already   sustained    a    loss. 
But  in  equity  it  was  very  reasonably  held,  that  even  in  the  absence      ,' 
of  any  special  agreement,  a  person  who  was  entitled  to  contribution  p 
or  indemnity  from  another  could  enforce  his  right  before  he  had 
sustained  actual  loss,  provided  loss  was  imminent ;  and  this  princi\  t 
pie  will  now  prevail  in  all  divisions  of  the  High  Court.    Therefore  '; 
a  person  who  is  entitled  to  be  thus  indemnified  against  loss  is  not  ! 
obliged  to  wait  until  he  has  suffered,  and  perhaps  been  ruined,  be-/ 
fore  having  recourse  to  Judicial  aid.     Thus,  in  the  ordinary  case 
of  principal  and  surety,  as  soon  as  the  creditor  has  acquired  a  right 
to   immediate  payment  from  the  surety,  the  latter  is  entitled  to  call 
upon  the  principal  debtor  to  pay  the  amount  of  the  debt  guaranj' 
teed,  so  as  to  relieve  the  surety  from  his  obligation ;  and  when  one 
person  has  covenanted  to  indemnify  another,  an  action  for  specific 
performance  may  be  sustained  before  the  plaintiff  has  actually  beeri 
damnified ;  and  the  limit  of  the  defendant's  liability  to  the  plain-! 
tiff  is  the  full  amount  for  which  he  is  liable ;  or  if  he  is  dead  or  in- 
solvent the  full  amount  provable  against  his  estate,  and  not  only  the 
amount  of  dividend  which  such  estate  can  pay.    In  strict  conformity 
with  these  principles,  partners  and  directors  who  are  individually 
liable  to  be  sued  on  bonds  and  notes,  which  as  between  them  and 
their  copartners  are  to  be  regarded  as  the  bonds  and  notes  of  the  firm 
or  company,  are  entitled  to  call  for  contribution  before  these  bonds 
or  notes  have  been  actually  paid.     So  a  trustee  of  shares  liable  to 
calls  is  entitled  to  be  indemnified  by  his  cestui  que  trust  against  them 
before  they  are  paid."   irhis.JS_tatement  of  the  law  is  an  authority  in  J 
favour  of  the  view  that  some  relief  can  be  given,  but  it  does  not£- 
specify  the  form  or  limit  of  the  relief;  nor  do  any  of  the  authori-\ 
ties  cited  in  the  notes  throw  any  further  light  on  the  matter.     Nor 
have  I  been  able  to  obtain  assistance  from  American  or  English 
writers  on  equity  or  on  the  law  of  suretyship.     The  plaintiff's  diffi- 
culties have  been  increased  by  this,  that  an  application  by  her  for 
leave  to  use  the  third  party  procedure  ordinarily  applicable  in  cases 
of   contribution   or   indemnity   was   refused   in   the   administration 
action,  on  the  ground  that  the  procedure  is  not  available  in  an  ad- 


672  RIGHT    OF    CONTRIBUTION 

ministration  action.  And  even  if  the  question  had  arisen  upon  a 
third  party  procedure,  nearly  the  same  difficulties  would  have  oc- 
curred. 

In  this  state  of  the  authorities  I  think  that,  if  the  plaintiff  had 
made  the  creditor  a  defendant  to  the  present  action,  I  ought  to 
have  held  that  the  allowance  of  the  principal  creditor's  claim  in 
the  administration  action  was  equivalent  to  a  judgment  against  the 
plaintiff  for  the  whole  amount  of  the  guarantee,  and  that  on  the 
precedents  of  Morgan  v.  Seymour,  1  Ch.  Rep.  120,  and  Deering  v. 
Earl  of  Winchelsea,  1  Cox  318,  2  Bos.  &  P.  270  (Vol.  11,-1893), 
the  plaintiff  would  have  been  entitled  to  a  declaration  of  her  right 
to  contribution  and  to  an  order  upon  the  solvent  cosurety  to  pay  his 
proportion  to  the  principal  creditor.  iThe  principal  creditor  fiofi 
being  a  party,  I  think  that  I  can  not  order  payment  to  him  or  di- 
rectly prevent  him  from  enforcing  his  judgment  against  the  plain- 
tiff alone.  Nor  can  I  at  present  order  the  cosurety  to  pay  his  half 
to  the  plaintiff,  for  the  plaintiff  can  not  give  him  a  discharge  as 
against  the  principal  creditor,  and  this  case  is  not  like  the  case  of  a 
plaintiff  who  merely  claims  indemnity,  as  in  the  cases  referred  to 
>y  Jessel,  M.  R.,  in  Lacey  v.  Hill,  Law  Rep.  18  Eq.  182,  191.  in 
which  no  question  arises  as  to  any  other  party.  But  I  think  that 
I  can  declare  the  plaintiff's  right,  and  make  a  prospective  order 
under  which  (whenever  she  has  paid  any  sum  beyond  her  share) 
she  can  get  it  back,  and  I  therefore  declare  the  plaintiff's  right  to 
contribution,  and  direct  that,  upon  the  plaintiff  paying  her  own 
share,  the  defendant  Gullick  is  to  indemnify  her  against  further 
payment  or  liability,  and  is,  by  payment  to  her  or  to  the  principal 
creditor  or  otherwise,  to  exonerate  the  plaintiff  from  liability  be- 
yond the  extent  of  her  own  share.  The  plaintiff  must  have  liberty/ 
to  apply  in  Chambers  and  generally  to  apply. 

See  also  Ferrer  v.  Barrett,  57  N.  Car.  455 ;  Hodgson  v.  Baldwin,  65  111.  532. 


SECTION  5.   AMOUNT  RECOVERABLE      \[f 

STALLWORTH  v.  PRESLAR 

34  A  la.  505  (1859). 

/"     Stone,  J. :     When  two  or  more  persons  jointly  become  sureties 
i    for  another,  on  a  note  for  the  payment  of  money,  each  surety  be- 
|   comes  liable  to  the  other  to  pay  his  share  of  the  liability,  in  the  J 
/   event  the  principal  fails  to  do  so.    Pait  v.  Pait,  19  Ala.  713 ;  White  ' 

v.  Banks,  21  Ala.  705;  Taylor  v.  Morrison,  26  Ala.  728;  Martin 

v.  Baldwin,  7  Ala.  923. 

In  such  case,  if  the  principal  fails  to  pay,  and  one  of  several 


Y 


H    \A^Y 


' 


AMOUNT   RECOVERABLE 


673 


sureties  is  forced  by  suit  to  pay  the  debt,  there  accrues  to  the  surety 
so  paying  at  the  time  of  the  payment,  a  right  of  action  against  his 
cosurety  for  contribution.  The  surety  sued  need  not  wait  until  the 
money  is  forced  out  of  him  by  execution.  He  may  pay  as  soon  as 
judgment  is  recovered  against  him,  or  his  liability  otherwise  fixed 
and  matured,  and-does  not  thereby  forfeit  his  right  to  contribution 
.Cosureties.  Money  thus  paid  is,  to  the  extent  of  the  lia- 
bility of  the  cosurety  to  contribute,  considered  at  law  as  paid  at 
the  special  instance  and  request  of  the  cosurety;  and  at  that  pre- 
cise time,  the  cause  of  action  to  recover  on  such  implied  promise 
accrues,  without  reference  to  the  time  when  the  original  contract 
matured.  Knox  v.  Abercombie,  11  Ala.  997;  Broughton  v.  Rob- 
inson, 11  Ala.  922;  Roberts  v.  Adams,  6  Por.  361 ;  Young  v.  Clark, 
2  Ala.  264;  May  v.  Long,  6  Ala.  107;  Martin  v.  Baldwin,  7  Ala. 
923 ;  Jones  v.  Lightf oot,  10  Ala.  18 ;  Hooks  v.  Br.  B'k  Mobile,  8 
Ala.  580;  Crouch  v.  Terry,  12  Ala.  225;  Pearson  v.  Gayle,  11  Ala. 
278 ;  1  Parsons  on  Contracts,  32  to  37. 

The  fact  that  Mr.  Stallworth,  for  the  sum  of  $1,000,  discharged 
the  debt  for  which  he  and  Mr.  Preslar  were  liable  as  sureties,  can 
have  no  effect  on  the  rights  of  the  parties,  farther  than  to  reduce 
the  amount  of  the  latter's  liability.  In  this  class  of  cases,  equality 
is  equity ;  and  the  debt  having  been,  as  it  is  contended,  discharged 
by  thejxiyment  of  $1,000,  Mr.  Preslar  is  only  liable  to  contribute 
his  proportion  of  that  sum,  with  interest  from  the  time  of  payment. 
SteeTe^vTirealing,  24  Ala.  286;  Br.  Bank  of  Mobile  v.  Robertson, 
19  Ala.  798;  Cullum  v.  Br.  Bank  of  Mobile,  23  Ala.  797;  Martin 
v.  Baldwin,  7  Ala.  923;  Pinkston  v.  Taliaferro,  9  Ala.  547;  Bizzel 
v.  White,  13  Ala.  422.  It  may,  without  affecting  the  result  of  this 
case,  be  conceded,  that  unless  the  plaintiff  can  show  that  he  has 
paid  a  greater  sum  than  the  defendant  remains  liable  to  pay,  he 
can  not  maintain  tin's  action.  See  Ex  parte  Gifford,  6  Vesey  805. 
If,  however,  the  entire  liability  is  discharged — canceled — against 
both  sureties,  then  the  plaintiff  has  paid  a  greater  sum  than  the  de- 
fendant can  ever  be  required  to  pay  to  the  creditor,  for  he  can 
never  be  required  to  pay  anything  to  him.  In  such  case,  if  he  is 
not  liable  to  his  cosurety,  he  is  liable  to  no  one.  The  result  of  the 
rule  contended  for  would  be,  to  give  him  the  benefit  of  the  plain- 
tiff's bargain,  without  imposing  on  him  any  of  its  burdens.  Sup- 
pose the  compromise,  or  accord  and  satisfaction,  had  proceeded  on 
the  terms  of  the  payment  by  Stallworth  of  one-half  the  liability, 
and  for  that  consideration  the  creditor  had  canceled  the  entire  lia- 
bility as  against  all  the  obligors.  Is  it  not  manifest  that,  under  such 
a  rule,  Preslar  would  become  the  recipient  of  all  the  benefits  of 
Stallworth's  bargain?  This  could  not  be  equity,  because  it  is  not 
equality.  Under  well  defined  rules,  Stallworth,  at  the  time  he  made 
the  payment,  had  the  clear  right  to  pay  the  entire  debt,  and  then  to 
43 — DeWitt. 


A 


l^u^- 


f 


J^fJlL^ 


/iit 


674  RIGHT   OF    CONTRIBUTION 

recover  one  moiety  thereof   from  Preslar.     To  hold  that,  because 
[he  secured  better  terms  than  the  law  required  he  should  demand, 
he  thereby  forfeited  his  right  to  contribution,  would  lead  to  the  most  / 
shocking  injustice. 

Another  view  of  this  question :  Suppose  Mr.  Stallworth  had 
paid  to  Halsey,  Utter  &  Co.  their  entire  demand,  and  had  subse- 
quently received  from  Watts,  his  principal,  indemnity  for  one-half 
the  amount ;  or  suppose  an  execution,  issued  upon  the  judgment, 
had  been  levied,  as  to  half  the  amount,  of  the  goods  of  Watts ;  and 
he,  Watts,  having  no  other  effects,  the  remaining  half  had  been  paid 
by  Stallworth.  If,  in  the  case  first  supposed,  Stallworth  had  sued 
Preslar  for  contribution,  the  latter  could  claim  an  equal  benefit  in 
the  indemnity  furnished  by  Watts,  their  common  principal.  Bizzel 
v.  White,  13  Ala.  422;  Pinkston  v.  Talliaferro,  9  Ala.  547.  Bemg,\ 
under  this  rule,  entitled  to  share  in  all  the  advantage_S-_s_e_ciired  by 
his  cosurety's  diligence,  he  must,  to  the  extent  of  his  share  of  the 
I  mutual  liability,  contribute  to  the  burdens  which  that  liability  im- 
poses. 

These  rules  show  clearly  that  the  circuit  court  erred  in  sustaining 
defendant's  demurrer  to  the  first  count  of  the  complaint. 

Under  the  rules  above  declared,  the  plaintiff's  right  to  recover  in 
this  action,  depends  on  the  fact  that  he  and  the  defendant  were  co- 
sureties of  Mr.  Watts,  their  common  principal;  and  that  after  de- 
fault by  the  principal,  the  plaintiff  had  paid  more  than  his  pro  rata 
share  of  the  liability.  This,  we  have  seen,  does  not  render  it  neces- l 
sary  that  he  shall  have  paid  more  than  one-half  of  the  -original  lia- 
bility,  provided  the  debt  to  the  creditors  had  been  extinguishedjas 
against  all  the  obligors.  Proof,  then,  of  these  facts,  makes^Tpnm 
facie  case  for  recovery.  Any  testimony  which  legitimately  tends 
to  establish  either  one  of  these  facts,  is  legal  and  competent,  and 
should  not  be  rejected. 


b 


Note :  The  value  of  property  turned  over  by  a  surety  in  discharge  of  the 
debt  is  the  basis  of  calculation  for  contribution  from  cosureties.  Jones  v, 
Bradford,  25  Ind.  305 ;  Elliott  v.  Mitchell,  47  Tex.  445. 


VAN  WINKLE  v.  JOHNSON 

11  Ore.  469,  5  Pac.  922,  50  Am.  Rep.  495  (1885). 

By  the  court,  Lord,  J. :  The  plaintiff  and  the  defendant  were 
sureties  on  a  promissory  note  executed  by  one  James  Johnson  to 
the  First  National  Bank  at  Walla  Walla.  James  Johnson  died  in- 
solvent. After  the  note  became  due,  the  defendant  called  upon  the 
payee,  and  expressed  his  willingness  to  pay  his  part  or  share  of  the 
note,  but  he  did  not  pay,  nor  offer  to  pay  the  same.     He  also  made 


AMOUNT    RECOVERABLE  675 

some  effort  to  notify  the  plaintiff  of  his  readiness  to  make  such 
payment  of  his  aliquot  part,  hut  the  information  was  never  com- 
municated to  the  plaintiff.  Subsequently,  the  holder  and  payee  of 
the  note  brought  an  action  tcTe7Tfore~e1ts:  collection,  but  the  defend- 
ant was  not  served  with  process.  After  the  action  was  commenced, 
but  before  judgment  was  recovered,  the  defendant,  paid  to  the  bank 
his  moiety  of  the  note.  Thereafter,  a  judgment  was  recovered 
gainst  the  plaintiff  for  the  balance  due  upon  the  note,  including 
osts,  and  a  certain  sum  adjudged  reasonable  as  attorney's  fees,  as 
tipufated  in  the  note.  This  suit  is  brought  to  compel  the  defend- 
nt  to  contribute  his  share  or  moiety  in  payment  of  such  costs  and^.. 
rttorney's  fee.  The  defendant  insists  that\he  is  noMiable  for  the 
reasoiLlhat  he  has  paid  his  part,  and  that  the  additional  expense  in-  ' 
curred  as  incidents  of  the  action  was  due  to  the  default  and  negli- 
gence of  the  plaintiff.  The  right  to  contribution  is  based  upon  the 
maxim,  "equality  is  equity."  Originally,  it  was  enforced  only  in 
equity  and  on  principles  of  natural  justice.  The  right  to  it  did  not 
depend  upon  contract,  but  sprung  from  equitable  considerations 
arising  out  of  the  relation  of  the  parties  to  each  other,  and  the  fact 
of  a  common  interest  and  a  common  burden  to  bear.  "The  right 
to  contribution,"  says  Church,  C.  J.,  "between  cosureties  depends 
upon  principles  of  equity  rather  than  upon  contract.  It  is  well  set- 
tled that  the  liability  exists,  although  the  sureties  are  ignorant  of 
:ach  other's  engagement.  The  equity  springs  out  of  the  proposi- 
ion  that  when  two  or  more  sureties  stand  in  the  same  relation  to  ~; 
principal,  they  are  entitled  equally  to  all  the  benefits  and  must 
ear  equally  all  the  burdens  of  the  position.  In  such  case  the 
laxim  'equality  is  equity'  applies."  (Wells  v.  Miller,  66  N.  Y. 
258.)  Although  the  obligation  of  cosureties  to  contribute  to  each 
other  is  not  founded  upon  contract,  or  any  notion  of  an  implied 
promise,  yet  the  doctrine  of  contribution  as  applied  and  admin- 
istered in  equity  has  stood  so  long  and  been  so  universally  recog- 
nized that  a  jurisdiction  at  law  has  grown  up  and  become  well  set- 
tled. (3  Pom.  Eq.  Jur.,  §  1418,  note;  Brant  on  Suretyship  and  L 
Guaranty,  §  220.)  When,  therefore,  two  or  more  persons  jointly  be- 
come sureties  for  another  on  a  note  for  the  payment  of  money,  each 


that  he  would  faithfully  perform  his  part  of  the  contract,  andpay 
his  proportion  of  the  loss  in  case  of  the  insolvency  of  the  princi- 
pal." (Hichborn  v.  Fletcher,  66  Maine  210.)  He  is  not  obliged 
to  delay  payment  until  suit  is  brought.  His  liability  accrues. upon 
the  maturity  and  nonpayment  of  the  note  for  which  he  is  surety. 
If,  however,  it  is  not  paid,  and  a  judgment  is  recovered  against  the 
principal  and  his  sureties,  or  against  the  sureties  alone,  and  one  of 
them  pays  it,  he  can  recover  one-half  of  the  costs  of  the  suit  from 


V 


676  RIGHT    OF    CONTRIBUTION 

his  cosurety..  (Davis  v.  Emerson,  17  Maine  64;  Newcomb  v.  Gib- 
son, 127  Mass.  398.)  In  the  former  of  these  last  cases,  the  court 
say :  "The  failure  to  pay  which  occasioned  the  costs  was  imputa- 
ble to  the  defendant  as  much  as  the  plaintiff.  The  plaintiff  paid 
the  execution  including  the  costs.  The  costs  can  not  be  distin- 
guished from  the  debt.  Every  equitable  principle  which  entitled 
the  plaintiff  to  contribution  for  the  one,  applies  equally  to  the 
other."  In  such  cases, [where  the  costs  are  recovered  in  a  judgment 
against  them  jointly,  it  is  clear,  then,  the  costs  have  become  a  com- 
mon burden,  and  each  may  recover  of  the  other  for  the  payment  of 
more  than  his  proportion.  And  it  has  been  further  held  that  a 
surety  may  not  only  recover  of  his  cosurety  a  proportionate  share 
of  his  costs,  but  also  the  expenses  incurred  in  defending  a  suit 
where  the  defense  set  up  was  reasonable,  hopeful  and  prudent. 
(Fletcher  v.  Jackson,  23  Vt.  593;  Marsh  v.  Harrington,  18  Vt. 
150.)  As  an  incident  of  the  common  burden  after  suit  brought, 
and  when  both  are  in  default  of  payment,  the  liability  for  contribu- 
tion for  acts  is  founded  upon  the  same  equitable  principle  as  is  ap- 
plied to  the  main  obligation.  In  Briggs  v.  Boyd,  37  Vt.  520,  the 
court  says :  "But  this  was  a  debt  for  which  the  plaintiff  and  de- 
fendant were  jointly  liable.  Briggs  was  no  more  bound  to  pay 
the  whole  of  it  than  Boyd.  As  between  themselves  each  was  to 
pay  one-half.  Had  Boyd  paid  his  half  or  offered  to  pay  it  before 
suit,  there  would  be  ground  for  his  saying  that  he  ought  not  to  con- 
tribute to  the  costs.  But  the  costs  were  made  in  collecting  the  whole 
of  the  note  from  Briggs.  As  one  appears  to  have  been  just  as  much 
in  fault  as  the  other  in  not  paying  the  note,  which  led  to  the  ne- 
cessity of  making  the  costs,  we  think  they  should  bear  equally  the 
burden  of  the  costs."  Now  what  are  the  facts,  in  the  case  before 
us.  Both  the  plaintiff  and  the  defendant  were  in  default  of  pay- 
•  ment  before  the  action  was  brought  on  the  note.  As  between  them- 
selves each  was  liable  for  his  share,  but  neither  paid  his  part  or  any 
portion  of  it  before  the  action  was  commenced.  It  is  true  that  the 
defendant  had  expressed  a  willingness  to  liquidate  his  share  to  the 
payee,  but  he  did  not  pay  it,  or  offer  to  pay  it.  It  is  true,  too,  he 
sent  word  to  the  plaintiff  that  he  was  willing  to  pay  his  share,  but 
the  message  was  never  communicated  to  the  plaintiff.  As  was  sajd 
in  Boyd  v.  Briggs,  supra,  had  he  "paid  his  half  or  offered  to  pay  xtn 
before  suit  was  brought,  there  would  be  ground  for  his  saying  that 
he  ought  not  to  contribute  to  the  costs."  j  Mere  willingness,  unac- 
companied by  any  offer,  is  not  sufficient.  Had  he  tendered  to  the' 
plaintiff  an  offer  to  pay  his  part  and  the  plaintiff  had  refused  or 
delayed  in  the  acceptance  of  such  offer,  the  case  would  stand  dif- 
ferent. It  is  clear  that  neither  had  any  defense  to  the  note ;  and 
whenever  an  action  should  be  brought,  the  judgment  with  its  in- 
cident was  inevitable.  The  fact  that  the  defendant  was  not  served 
with  process  is  not  material.     So  far  as  payment  is  concerned,  they 


AMOUNT    RECOVERABLE 


677 


were  equally  in  fault,  and  neither  had  done  such  things  with  re- 
spect to  the  other  that  would  furnish  any  just  reason  for  exonera- 
tiofTfrom  liability.  Suits  for  contribution  against  a  "cosurety  for 
costs,  like  many  other  suits  in  equity,  depend  very  much  upon  the 
particular  facts  of  each  case.  Considerations  of  right  and  justice 
as  applicable  to  the  facts  are  the  controlling  principle  in  determin- 
ing the  result.  Upon  the  facts  as  presented  by  this  record,  we  are.A/ 
of  the  opinion  the  Hefpnrfant  is  liable  for  bU  proportionate  share/' 
of  the  costs,  and  a  decree  must  be  entered  accordingly. 

Accord:   Gross  v.  Davis,  87  Tenn.  226,  11  S.  W.  92,  10  Am.  St.  635;  Bright 
v.  Lennon,  83  N.  Car.  183 ;  Davis  v.  Emerson,  17  Maine  64. 

■ 

U^V  ■  2 


1 


MICHAEL  v.  ALBRIGHT 


126  hid.  172,  25  N.  E.  902  (1890). 

Coffey,  J. :  Thisjaas  an  action  by  the  appellant  against  the  ap- 
pellee for  contribution.  The  complaint  alleges,  among  other  things, 
that  on  the  1st  day  of  November,  1884,  Enos  Michael,  Phillip  J. 
Michael,  Jacob  K.  Fox,  Jacob  E.  Michael,  and  the  appellant  and 
the  appellee,  executed  to  John  A.  Thorp  their  promissory  note  for 
theiiun-Qf  $1,700;  that  Enos  Michael  was  the  principal  in  said  note, 
and  the  other  makers  were  sureties  thereon  ;  that  after  said  note  be- 
came due,  the  appellant  paid  the  same,  which  then  amounted  to 
the  sum  of  $1,900;  that  at  the  time  appellant  paid  said  note  the 
principal,  and  all  the  other  parties  thereto,  except  the  appellant  and 
the  appellee,  then  were,  and  ever  since  have  been,  wholly  insolvent, 
and  had  not  then,  nor  have  Jhey  since  had,  any  property  subject  to 
execution ;  that  the  appellee  is  indebted  to  the  appellant  by  way  of 
contribution,  in  the  sum  of  $1,000. 

Upon  issue  joined  the  cause  was  tried  by  a  jury,  resulting  in  a 
verdict  for  the  appellee,  upon  which  the  court,  over  a  motion  for  a 
new  trial,  rendered  judgment. 

At  the  proper  time  the  appellant  entered  his  objection  to  the  trial 
of  the  cause  by  a  jury,  and  prayed  that  the  same  might  be  tried  by 
the  court,  but  the  court  overruled  his  objection,  and  he  excepted. 

The  only  questions  presented  for  our  consideration  relate  to  the  ■: 
action  of  the  court  in  submitting  the  cause  to  the  jury,  and  in  over- 
ruling appellant's  motion  for  a  new  trial. 

The  first  contention  of  the  appellant  is  that  the  cause  was  ope  of 
exclusive  equitable  jurisdiction,  and  that  by  reason  of  the  provisions 
of  section  409,  R.  S.  1881,  it  was  triable  by  the  court,  and  not 
by  jury. 

Section  409,  supra,  provides  that  "Issues  of  law  and  issues  of  fact 


678  RIGHT   OF    CONTRIBUTION 

in  causes  that,  prior  to  the  18th  day  of  June,  1852,  were  of  exclu- 
sive equitable  jurisdiction,  shall  be  tried  by  the  court." 

In  the  case  of  Judah  v.  Mieure,  5  Blackf.  171,  it  was  held  by 
this  court  that  an  action   for  contribution  might  be  maintained  in 
a  coiirt-of  law;  and  in  the  case  of  Sanders  v.  Weelburg,  107  Ind. 
'  266,  it  was  held  that  such  an  action  was  properly  triable  by  jury. 

It  is  conceded  by  the  appellant  that  if  the  present  suit  was  an 
ordinary  action  for  contribution  it  would  not  be  exclusively  within 
the  jurisdiction  of  a  court  of  equity,  but  he  contends  that  tht  alle-A 
gations  in  the  complaint  to  the  effect  that  some  of  the  sureties  are 
insolvent  gives  it  the  character  of  a  cause  of  exclusive  equitable 
cognizance. 

It  can  not  be  successfully  disputed  that  the  courts  of  law  have  al- 
ways assumed  jurisdiction  in  actions  for  contribution,  though  it 
has  sometimes  been  held  that  a  plaintiff  in  an  action  at  law  could 
not  recover  more  than  an  aliquot  part  of  the  whole  sum  paid  in 
discharge  of  the  debt.  But  the  question  as  to  the  extent  of  the  re- 
lief granted  is  not  the  test  as  to  whether  a  cause  belongs  exclu- 
sively to  a  court  of  equity;  but  the  question  is,  will  a  court  of  law- 
take  jurisdiction?  If  a  court  of  law  will  take  jurisdiction  and  grant 
1  some  relief,  then  the  cause  does  not  belong  exclusively  to  the  courts 
of  equity. 

The  better  opinion,  however,  seems  to  be  that  courts  of  law  will 
not  only  take  jurisdiction  of  the  kind  of  action  now  before  it,  but  ■•' 
that  they  will  grant  full  relief,  and  where  one  or  more  of  the  sure- 
ties are  insolvent  they  will  divide  and  apportion  the  amount  paid 
among  those  who  are  solvent.  Henderson  v.  McDuffee,  5  N.  H. 
38;  Mills  v.  Hyde,  19  Vt.  59. 

Our  opinion  is  that  the  cause  before  us  was  not  one  of  exclusive 
equitable  jurisdiction  prior  to  the  18th  day  of  June,  1852,  and  that 
the  court  did  not  err  in  awarding  to  the* appellee  a  jury  trial. 

The  remaining  question  in  the  case  relates  to  the  sufficiency  of 
the  evidence  to  sustain  the  verdict. 

The  evidence  in  the  cause  is  quite  voluminous,  but  we  have  given 
it  a  careful  examination.  While  it  is  not  as  satisfactory  as  could  be 
desired,  we  are  not  able  to  say  that  there  is  no  evidence  in  the  rec- 
ord warranting  the  conclusion  reached  by  the  jury.  We  can  not 
disturb  the  verdict  on  the  evidence. 

Judgment  affirmed.  * 

In  the  early  cases  the  rule  was  that  in  an  action  at  law  the  share  of  an  in- 
solvent surety  was  not  borne  by  all,  but  in  equity  it  was.  See  Browne  v.  Lee, 
6  B.  &  C.  689;  Cowell  v.  Edwards,  2  B.  &  P.  268;  Hole  v.  Harrison,  1  Chanc. 
Cas.  246.  m        JT\ 

The  absence  of  one  cosurety  from  the  state  has  the  same  effect  as  if  he/ 
were  insolvent.  Liddell  v.  Wiswell,  59  Vt.  365,  8  Atl.  680.  7 ^T^ 


AT 


RELEASE    OF    COSURETY 


679 


SECTION  6.   RELEASE  OF  COSURETY 

GEORGE  H.  SMITH,  JACOB  WISNER  ET  AL.  v.  STATF 
OF  MARYLAND,  USE  OF  THE  COUNTY  COM- 
MISSIONERS  OF   BALTIMORE   COUNTY 

46  Md.  617  (1877). 

Robinson,  J.,  delivered  the  opinion  of  the  court. 

This  is  a  motion  to.  quash  an  execution  issued  on  a  judgment,  re- 
covered by  the  appellee  against  the  appellants  and  Mary  Payne,  ex- 
eciitr-ix-  of  B.  N.  Payne,  sureties  on  the  bond  of  Nelson  Cooper, 
one  of  the  tax  collectors  of  Baltimore  county. 

At  the  request  of  one  of  the  heirs-at-law  of  Payne  a  statement 
was  made,  showing  the  ratable  proportion  due  by  each  defendant 
in  the  judgment,  and,  upon  the  payment  of  Payne's  proportion  as 
thus  ascertained,  the  appellee  directed  the  clerk  to  enter  the  judg- 
ment ^satisfied  as  against  his  executrix. 

The  appellants  contend  that,  being  cosureties,  the  entry  of  sat- 


isfaction as  against  the  executrix  of  Payne  discharges  them  from 
all  liability  on  account  of  said  judgment.  Now,  it  is  true  that  any 
I  valid  contract  or  agreement  between  the  creditor  and  the  principal, 
or  between  the  creditor  and  a  surety,  without  the  concurrence  of  co- 
sureties, whereby  the  latter  are  subject  to  an  increased  risk,  operates 
as  a  discharge  of  such  sureties.  And  hence  the  release  by  a  cred- 
itor of  the  principal,  releases  also  the  surety,  because  the  latter  is 
entitled,  upon  the  payment  of  the  debt,  to  be  subrogated  to  all  the 
rights  and  remedies  of  the  creditor,  and  the  creditor  can  not,  by 
his  own  act,  prejudice  or  in  any  manner  impair  these  rights  without 
forfeiting  his  remedy  against  the  surety. 

It  seems  also  to  be  well  settled  that  the  release  of  one  or  more 
\  sureties  without  the  assent  of  the  cosureties  will  operate  at   law 
to  discharge  the  latter,  because  it  is  a  cardinal  principle  of  surety- 
ship that  the  surety  has  the  right  to  stand  by  the  very  terms  of  the 
contract,  and  the  creditor  will  not  be  permitted  to  change  or  alter 
the  contract  without  concurrence  of  all  the  parties  to  it. 
1^    In  equity,  however,  the  rule  is  different,  and  the  release  of  one 
i  or  more  sureties  will  not  be  construed  to  have  this  effect,  unless  it 
I  subjects  the  cosureties  to  an  increased  risk  or  liability. 

Accordingly,  it  has  been  held  that  where  the  creditor  releases 
■  one  surety,  reserving  his  remedy  against  the  others,  the  effect  of 
such  release  operates  only  to  discharge  the  cosureties  from  the 
ratable  proportion  which  the  surety  thus  released  ought  to  have 
contributed,  and  such  further  proportion  as  he  ought  to  have  borne 
arising  from  the  insolvency  of  any  of  the  other  sureties. 

It  is  difficult  to  imagine  on  what  principle  it  can  be  maintained 


j/-* 


y\ru 


680  RIGHT    OF    CONTRIBUTION 

iii  equity,  that  the  mere  release  of  one  surety  discharges  the  other 
sureties  from  liability. 

As  between  themselves,  the  sureties  are  liable  only  for  their  pro- 
portion of  the  debt,  and  the  right  of  contribution  does  not  exist 
unless  they  have  paid  an  amount  exceeding  their  proportion. 

If,  then,  the  release  of  one  surety  discharges  the  others  from  the 
payment  of  the  proportion  of  the  debt,  which  such  surety  ought  to 
have  contributed,  and  discharges  them  also  from  the  proportion 
which  he  ought  to  bear  in  the  loss  arising  from  the  insolvency  of 
any  of»the  other  sureties,  it  is  clear  that  such  release  can  in  no 
manner  prejudice  or  subject  the  cosureties  to  an  increased  risk. 
It  follows  then,  from  what  we  have  said,  that  /the  payment  of 
Payne's  proportion  of  the  judgment,  and  the  subsequent  entry  of 
satisfaction  as  against  his  executors,  could  not  in  any  manner  affect 
the  rights  of  the  cosureties,  or  subject  them  to  an  increased  lia- 
bility. The  effect  of  that  entry  so  far  as  they  are  concerned,  is 
to  release  them  from  the  payment  of  Payne's  proportion  of  the 
judgment,  and  should  any  of  the  cosureties  prove  insolvent,  to  re- 
lease them  from  the  payment  of  Payne's  proportion  of  the  loss 
arising  from  such  insolvency. 

In  summary  motions  of  this  kind,  courts  always  exercise  a  quasi 
equitable  jurisdiction,  and  will  not  therefore  order  an  execution 
to  be  quashed  if  it  appears  upon  a  consideration  of  all  the  facts  and 
circumstances  of  the  case  it  would  be  against  well  settled  principles7 
of  equity.  A 

For  these  reasons,  the  motion  to  quash  the  execution,  and  strike 
out  the  judgment,. were  properly  overruled. 

Judgment  affirmed. 


SECTION  7.    SURETY  SEEKING  CONTRIBUTION  MUST 

ACCOUNT  FOR  INDEMNITY1  GIVEN  HIM 

BY  PRINCIPAL 

STEEL  v.  DIXON 

17  Ch.  Div.  825  (1881). 

In  October,  1878,  William  Robinson  applied  to  his  bankers  tor 
an  advance  of  £800.     The  bankers  consented  to  make  the  advance 
upon  the  security  of  a  joint  and  several  promissory  note  for  £80Q 
signed  by  Robinson  and  four  sureties.    Robinson  applied  to  G.  W.k 
Dixon  and  Jason  Gurneyjo  become  two  of  the  sureties,  and  theyL 
consented  to  do  so  upon  the  terms  of  his  securing  them,  by  means/  £ 
of   an   assignment   or  transfer   of    sufficient   property   of   his   owni    < 
from  any  liability  upon  the  note.     The  note  was  dated  the  28th  of 
October,  1878,  and  was  signed  by  Dixon  on  the  27th  of  October, 


ACCOUNTING   FOR    INDEMNITY  681 

and  by  Gurney  on  the  28th  of  October,  and  was  payable  on  the 
30th  of  April,  1879.  Afterward  Robinson  procured  T.  A.  Steel  and 
W.  Cfcgter  to  act  as  the  other  sureties.  Steel  signed  the  note  on  the 
15th  of  November,  1878,  and  Chater  a  day  or  two  before..  Neither 
Steel  nor  Chater  when  they  signed  the  note  had  any  knowledge  of 
the  agreement  between  Robinson  and  Dixon  and  Gurney  that  he 
should  give  them  security.  On  the  24th  of  February,  1879,  Robin-  •■ 
son  executed  a  bill  of  sale  of  his  furniture  to  Dixon  and  Gurney 
as  security  for  their  liability  on  the  note.  The  deed  contained  a 
power  of  sale,  and  it  was  declared  that  the  grantees  should  apply 
the  proceeds  of  sale  in  the  first  place  in  the  payment  of  expenses,  ' 
and  in  the  second  place  in  or  toward  payment  of  the  share  or  shares 
of  the  moneys  which  should  or  might  become  payable  upon  or  in 
respect  of  the  promissory  note,  and  which  share  or  shares  Dixon 
and  Gurney  should  or  might,  as  between  themselves  and  Steel  and 
Chater,  be  liable  to  pay  or  contribute  in  the  event  of  default  being  ■" 
made  by  Robinson  in  the  payment  of  all  or  any  part  of  the  moneys 
due  under  the  promissory  note ;  and  in  the  third  place  toward  pay- 
ment of  the  residue  of  the  moneys  which  should  or  might  become 
/payable  upon  or  in  respect  of  the  promissory  note,  and  which 
'  residue  Steel  and  Chater  would  upon  default  of  Robinson  be  pri- 
\  marily  liable  to  pay  or  contribute,  but  so  that  Steel  and  Chater  or 
either  of  them  should  have  no  right  or  power  to  interfere  or  claim 
jany  benefit  in  the  provisions  of  the  security,  and  lastly  to  pay  any  - 
surplus  of  the  proceeds  to  Robinson.  This  deed  was  registered 
under  the  Bills  of  Sale  Act.  On  the  18th  of  March,  Robinson 
filed  a  liquidation  petition.  The  promissory  note  was  paid  to  the 
bankers  at  maturity  by  the  four  sureties,  each  of  them  contributing 
£200.  Dixon  and  Gurney  afterward  sold  the  furniture  comprised 
irTThe  deed  of  the  24th  of  February,  1879,  realizing  thereby  about 
£500.  This  action  was  brought  by  Steel  and  Chater  against  Dixon 
and  Gurney,  claiming  a  declaration  that  Dixon  and  Gurney  were  ' 
bound  to  account  to  the  plaintiffs,  as  cosureties  of  the  promissory 
note,  for  the  sums  received  by  them  by  the  sale  of  the  furniture  ;  that 
/no  account  might  be  taken  of  the  moneys  so  received;  and  payment 
to  each  of  the  plaintiffs  of  one-fourth  part  of  what  should  appear 
on  the  taking  of  the  account  to  have  been  received  by  Dixon  and 
\  Gurney. 

The  trustee  in  the  liquidation  of  Robinson  disputed  the  validity 
of  the  deed  of  the  24th  of  February,  1879,  alleging  that  its  execu- 
tion by  Robinson  was  an  act  of  bankruptcy,  and  that  it  was  vbid 
in  toto,.  as  against  the  trustee.  The  trustee  was  afterward  made  a 
defendant  to  the  action,  and  he  delivered  a  statement  of  defense. 
An  order  was  subsequently  made  by  Fry,  J.,  on  the  application  of 
Dixon  and  Gurney,  giving  them  leave  to  serve  a  notice,  under  rule 
17  of  order  XVI,  of  the  Rules  of  Court,  1875,  on  the  trustee,  for 
the  purpose  of  raising  as  between  them  and  him  the  question  of  the 


682 


RIGHT    OF    CONTRIBUTION 


validity  of  the  deed.  A  notice  was  accordingly  served  by  Dixon 
and  Gurney  on  the  trustee,  and  he  delivered  a  reply,  alleging  the 
total  invalidity  of  the  deed.  The  plaintiffs  by  their  reply  to  the 
trustee's  defense  said  that  they  did  not  claim  any  interest  in  the 
proceeds  of  sale  of  the  furniture  so  far  as  those  proceeds  exceeded 
the  £400  secured  by  the  deed  of  the  24th  of  February,  1879,  to 
Dixon  and  Gurney. 

It  was  arranged  that  the  question  should  first  be  tried  whether 
assuming  that  the  bill  of  sale  created  a  valid  security  as  between 
Robinson  and  his  trustee  and  Dixon  and  Gurney  for  £400  in  favor 
of  Dixon  and  Gurney,  but  that  it  did  not  create  any  security  in  fa- 
vor of  Steel  and  Chater,  Steel  and  Chater  were  as  between  them- 
selves and  Dixon  and  Gurney,  entitled  to  share  in  the  benefit  of 
the  security. 

Fry,  J.,  after  stating  the  facts,  continued: 

The  plaintiffs,  by  their  reply  to  the  trustee  in  the  liquidation  of 
Robinson,  made  no  claim  under  the  deed,  except  to  the  extent  of  the 
£400  which  had  been  raised  under  it  for  the  defendants  Dixon  and 
-Gurney,  and  therefore  the  question  on  which  I  have  now  to  ex- 
press my  opinion  is  this,  assuming  that  the  deed  created  a  valid 
security  in  favor  of  Dixon  and  Gurney,  must  it  not  have  created  a 
like  valid  security  in  favor  of  the  plaintiffs,  and  are  not  the  plain- 
tiffs, as  between  themselves  and  Dixon  and  Gurney,  entitled  to 
share  in  the  security? 

In  my  opinion  the  plaintiffs  are  entitled  to  share  in  the  benefits 
secured  by  the  deed  to  the  defendants.  In  coming  to  that  conclu- 
sion, I  base  myself  on  the  general  principle  applicable  to  cosureties, 
as  established  by  the  well-known  and  often-cited  case  of  Deering, 
v.  Earl  of  Winchelsea,  the  short  effect  of  which  I  take  to  be  that,/asj 
between  cosureties,  there  is  to  be  equality  of  the  burden  and  of  the 
benefit.  When  I  say  equality  I  do  not  mean  necessarily  equality 
in  its  simplest  form,  but  has  been  sometimes  called  proportionable 
equality.  The  result  of  that  case  was  expressed  by  Baron  Alder- 
son  in  Pendlebury  v.  Walker,  4  Y.  &  C.  Ex.,  p.  441,  in  these  terms, 
that  "where  the  same  default  of  the  principal  renders  all  the  co- 
sureties responsible,  all  are  to  contribute ;  and  then  the  law  super- 
adds that  which  is  not  only  the  principle  but  the  equitable  mode 
of  applying  the  principle,  that  they  should  all  contribute  equally, 
if  each  is  a  surety  to  an  equal  amount;  and  if  not  equally,  then  pro- 
portionably  to  the  amount  for  which  each  is  a  surety."  I  hold,  there- 
fore, that  the  result  of  Deering  v.  Earl  of  Winchelsea  is  to  require 
that  the  ultimate  burden,  whatever  it  may  be,  is,  as  between  the  co- 
sureties to  be  borne  by  them  in  proportion  to  the  share  of  the  debt 
for  which  they  have  made  themselves  responsible. 

If  that  be  the  case,  it  follows  that  each  surety  must  bring  into 
hotchpot  every  benefit  which  he  has  received  in  respect  o.f_ihe 
suretyship  which  he  undertook,  and  if  he  has  received  a  benefitby 


ACCOUNTING    FOR    INDEMNITY  683 

/ 

way-of  indemnity  from  the  principal  debtor,  it  appears  to  me  that 
he  is  bound,  as  between  himself  and  his  cosureties,  to  bring  that 
into  hotchpot,  in  order  that  it  may  be  ascertained  what  is  the  ulti- 
mate burden  which  the  cosureties  have  to  bear,  so  that  that  ulti- 
mate burden  may  be  distributed  between  them,  equally  or  propor- 
tionably,  as  the  case  may  require. 

"TrTccTming  to  that  conclusion,  as  I  do  upon  principle,  I  am  much 
strengthened  by  the  American  authorities  to  which  my  attention 
has  been  called  by  Mr.  Cookson.  Mr.  Justice  Story,  in  his  Equity 
Jurisprudence,  asserts  the  principle  in  these  terms:  "Sureties  are 
not  only  entitled  to  contribution  from  each  other  for  moneys  paid 
in  discharge  of  their  joint  liabilities  for  the  principal,  but  they  are 
also  entitled  to  the  benefit  of  all  securities  which  have  been  taken 
by  any  one  of  them  to  indemnify  himself  against  such  liabilities." 
And  in  the  case  of  Miller  v.  Sawyer,  30  Vt.  412,  which  was  before 
the  Court  of  Chancery  in  the  state  of  Vermont,  the  principle  is 
stated  thus  by  Mr.  Justice  Barrett,  the  learned  judge  who  deliv- 
ered the  judgment  of  the  court.  Having  referred  to  Deering  v. 
Earl  of  Winchelsea,  he  said:  "For  present  purposes  it  is  need- 
less to  cite  and  discuss  the  books  and  cases  to  any  considerable  ex- 
tent, in  which  this  subject  is  treated,  and  the  leading  principles  of 
it  applied  in  settling  the  rights  and  duties  of  parties.  It  may  be 
comprehensively  stated,  that  persons  subject  to  a  common  burden 
stand  in  their  relation  to  each  other  upon  a  common  ground  of 
interest  and  of  right,  and  whatever  relief,  by  way  of  indemnity,  is 
furnished  to  either  by  him  for  whom  the  burden  is  assumed,  mures 
equally  to  the  relief  of  all  the  common  associates;"  and  in  the 
course  of  his  judgment  he  refers,  among  other  cases,  to  that  of 
Hall  v.  Robinson,  8  Iredell  56,  in  which  Chief  Justice  Ruffin  said: 
"The  relief  between  cosureties  in  equity  proceeds  upon  the  maxim 
that  equality  is  equity,  and  that  maxim  is  but  a  principle  of  the 
'simplest  natural  justice.  It  is  a  plain  corollary  from  it  that,  fthen  J 
two  or  more  embark  in  the  common  risk  of  being  sureties  for  an-  L 
other,  and  one  of  them  subsequently  obtains  from  the  principal  an 
indemnity  or  counter-security  to  any  extent,  it  inures  to  the  ben- 
enTof  ahV-The  risk  and  the  relief  ought  to  be  coextensive."  These 
American  decisions  are,  it  seems  to  me,  exactly  in  point. 

Mr.  North  has  urged  that  a  difference  may  arise  where  the  se- 
curity taken  by  one  cosurety  is  taken  by  virtue  of  a  bargain  entered 
into  between  him  and  the  principal  debtor  at  the  time  of  his  becom-  A 
ing  surety.  In  my  judgment  that  is  immaterial.  I  think  it  does 
not  affect  the  principle  of  equity  to  which  I  have  referred  whether 
the  security  is  the  result  of  a  contract  with  the  debtor  at  the  time 
when  the  cosurety  becomes  a  surety,  or  is  voluntarily  given  subse- 
quently or  arises  in  any  other  manner  whatever,  I  repeat  that  what- 
ever goes  to  diminish  the  total  amount  of  the  burden  must,  in  my 
judgment,  be  brought  into  hotchpot. 


684  RIGHT    OF    CONTRIBUTION 

In  saying  that,  however,  I  wish  to  guard  myself  against  its  be- 
ing supposed  that  this  equity  may  not  in  any  case  be  varied  or  de- 
parted from.  Those  to  whose  benefit  the  security  inures  may,  of 
course,  contract  themselves  out  of  the  benefit,  and  the  question  may 
therefore  well  have  to  be  considered  in  each  case  whether  there 
has  been  such  a  contract  between  the  cosureties.  But  a  contract 
between  one  surety  and  the  debtor  is  not  to  be  confounded  with  a 
contract  between  the  cosureties — a  contract  by  which  one  cosurety 
renounces  his  equity  in  favor  of  another.  In  the  next  place,  cases 
may  arise  in  which  one  cosurety,  by  reason  of  his  default  in  per- 
forming his  duty  toward  the  other,  may  estop  himself  from  assert- 
ing the  equity  which  he-  would  otherwise  have  had  against  him. 
Some  such  cases  have  been  suggested  by  Mr.  North  in  the  course 
of  his  argument.  But  neither  of  those  principles  appears  to  me  to 
fjpply  in  the  present  case,  because)  here  the  contract  upon  which_the 
security  was  given  was  made  between  the  debtor  and  two  of  the  co- 
sureties,  and  was  not  communicated  at  the  time  of  their  contract  of 
suretyship  to  the  other  cosureties,  andthereappears  to  me  to  be 
■  nothing  in  the  conduct  of  the  plaintiffs  (upon  the  assumption  on 
which  I  am  now  proceeding)  which  can  deprive  them  of  the  benefit^ 
pf  their  right  against  the  cosureties.  Therefore  on  this  assumption 
I  hold  that  the  plaintiffs  would  be  entitled  to  the  benefit  which  they 
claim. 

Indemnity  in  the  hands  of  a  surety  will  inure  to  the  benefit  of  other  sure- 
'  \ties  who  make  their  contract  later.  Farmers'  Nat.  Bank  v.  Teeters,  31  Ohio 
St.  36. 

In  an  action  between  cosureties  for  contribution,  the  defendant  can  not 
avail  himself  of  an  indebtedness  of  the  plaintiff  to  the  principal  as  a  defense. 
Davis  v.  Toulmin,  77  N.  Y.  280. 


HARRIET  HOOVER,  APPELLEE,  v.  J.  J.  MOWRER  ET  AL., 

APPELLEES,  AND  JAMES   HOOVER 

ET  AL.,  APPELLANTS 


84  Iowa  43,  50  N.  W.  62,  35  Am.  St.  293  (1891). 


Beck,  C.  J.:  The  note  upon  which  the  suit  was  originally 
brought  was  executed  by  J.  J.  Mowrer  and  his  wife,  Sarah  Mow- 
rer,  to  R.  W.  Adams,  E.  O.  Craig,  C.  Hoover,  Sr.,  and  James 
Hoover,  and  by  them  indorsed  to  the  plaintiff.  The  purpose  of 
the  note  was  to  raise  money  for  the  makers  upon  the  credit  of  the 
payees  and  indorsers,  they  becoming  secunty_fiir_lhe  jnakers.  The 
note  was  the  renewal  of  prior  notes  made  by  the  parties,  and  a 
continuance  in  fact  of  the  prior  transaction.  The  Lloovers  filed  a 
cross-bill  alleging  that  since  the  commencement  of  the  action  they 
had  paid  the  note  to  the  holder;  that  the  Mowrers  are  insolvent; 

,1) 


V. 


qJU   Jju^    CK^M    Ax* 


y(KJL 


i    .be 


ACCOUNTING   FOR    INDEMNITY 


685 


£*^h 


(0 


and  that,  for  the  purpose  of  protecting  all  the  sureties,  they  exe- 
cuted to  Craig  &  Adams  a  mortgage  upon  certain  town  lots  and  a 
stock  of  general  merchandise  owned  by  them,  and  they  took  pos- 
session of  the  goods,  and  converted  them  to  their  own  use.  Upon 
this  cross-bill  the  Hoovers  pray  that  Craig  &  Adams  be  required 
'to  account  for  the  value  of  the  goods,  and  that  the  mortgage  inure 
to  the  benefit  of  all  the  sureties,  and  that  to  that  end,  and  for  the 
purpose  of  protecting  all,  proper  judgment  be  entered  in  their  f a-  /X>  " 
vor  for  one-half  the  value  of  the  goods.  Craig  &  Adams  deny  that  ^. 
they  are  cosureties  of  the  Hoovers,  and  are  liable  to  share  with 
them  the  proceeds  of  the  mortgaged  property,  and  apply  any  part 
thereof  to  discharge  their  liability  on  the  note. 

We  are  first  required  to  determine  [whether  Craig  Jk  Adams  may 
appropriate  the  proceeds  of  the  mortgaged  property  to  their  exclu-  ' 
siveHrenefit,  or  whether  the  mortgage  should  be  regarded  as  se- 
curity for  all  of  the  indorsers  of  the  note.  |  Counsel  for  the  ap-  j. 
pellees  state  quite  correctly,  we  think,  the  rule  of  law,  "that  feecuri^r  \ 
lies  obtained  by  one  surety  inure  to  the  benefit  of  all."  I  hit  he  lim- 
its the  application  of  the  rule  to  cases  where  the  securities  have 
been  obtained  after  all  the  sureties  have  become  liable,  and  without 
any  agreement  to  that  effect  before  they  become  liable.  We  think 
these  conditions  alone  do  not  limit  the  rule,  and  that  its  application 
extends  to  all  cases  where  a  surety  attempts,  by  fraud  or  unfair 
dealings,  to  obtain  advantage  over  his  cosurety.  The  authorities 
cited  by  counsel,  we  think,  do  not  support  his  position.  The  rule 
exists  for  the  protection  of  the  sureties,  and  not  for  the  good  61 
the  creditors  or  the  principal  debtor.  By  the  contract  of  sureties, 
^  they  "Become  severally  bound  for  the  debt  of  the  principal.  But  it 
is  plain  that  each  should  contribute  equally  in  case  they  are  called 
upon  to  pay  the  debt.  One  can  not  in  any  way  escape  the  burden 
while  his  cosurety  is  not  relieved.  When  they  enter  into  the  con- 
tract, they  do  so  subject  to  that  equitable  rule,  which  becomes,  as 
it  were,  a  contract  between  them.  )Each  surety  is  authorized  lo 
rely  upon  this  rule  to  protect  himself  from  imposition  and  fraud 
which  his  cosurety  and  principal  might  practice  upon  him.  The  . 
principal  by  indemnifying  one  of  the  sureties,  would  relieve  him  of 
the  burden  of  the  suretyship  which  the  other  still  carried.  This 
would  be  unfair  and  inequitable.  In  cases  it  is  done  with  the 
knowledge  and  consent  of  the  other  surety,  it  would  thereby  be 
relieved  of  objection,  for  the  surety  would  not  complain  of  that  to 
which  he  assents.  And  when  sureties  do  not  become  bound  at  the 
same  time  or  by  the  same  contract,  as  when  additional  or  further 
security  is  demanded,  and  another  surety  becomes  bound  in  re- 
sponse to  such  demand,  the  sureties  can  doubtless  stipulate  for  in- 
demnity ;  for,  by  so  doing,  they  do  not  prejudice  the  prior  or  sub-  { 
sequent  surety,  whose  burden  is  not  affected  by  the  indemnity,  and 
who,  as  he  did  not  become  bound  by  the  same  contract  with  the 


1/JO-^jlj 


<JL<) 


- 


686  RIGHT    OF    CONTRIBUTION 

other  surety,  can  not  claim  equality  with  him.  In  our  opinion, 
when  several  sureties  become  bound  by  the  same  instrument,  one 
can  not  arrange  with  the  principal  for  indemnity  for  himself  with- 
out the  knowledge  and  assent  of  the  others.  In  the  case  before  us, 
the  sureties  become  bound  by  the  same  instrument,  and  no  assent 
was  given  by  the  Hoovers  that  Craig  &  Adams  should  obtain  in- 
demnity by  the  mortgage.  Neither  did  the  Hoovers  have  knowl- 
edge as  to  the  indemnity  obtained  by  Craig  &  Adams.  In  our  opin- 
ion, the  proceeds  of  the  security  acquired  by  them  must  be  held 
for  the  benefit  of  all  the  sureties.  The  district  court  erred  in  dis- 
missing the  cross-bill. 

It  appears  from  the  evidence  that  Craig  &  Adams  realized  eleven 
hundred  and  twenty-six  dollars  and  forty-two  cents  out  of  the 
goods.  They  paid  for  rent,  clerk  hire  and  other  expenses,  which 
are  not  disputed  by  counsel  on  either  side,  one  hundred  and  fifty- 
eight  dollars  and  seventy-five  cents.  They  also  paid  fifty  dollars 
attorneys'  fees  in  defending  against  a  garnishment  proceeding  to 
charge  them  for  the  mortgaged  property.  As  these  fees  were  ex- 
pended in  protecting  the  property  which  created  the  fund  now 
in  question,  they  ought  to  be  paid  out  of  that  fund.  A  mortgage 
on  the  goods  to  Cook,  amounting  to  two  hundred  and  eighty-six 
dollars  and  eighty-five  cents,  was  paid  by  Craig  &  Adams.  It  was 
executed  by  J.  J.  Mowrer  and  not  by  his  wife,  to  whom  the  goods 
had  been  transferred,  and  who  executed  the  mortgage  to  Craig  & 
Adams.  Counsel  for  the  Hoovers  insist  that  the  mortgage  did  not 
bind  the  property,  and,  therefore,  should  not  have  been  paid.  But, 
as  J.  J.  Mowrer  was  in  possession  of  the  goods  and  conducting  the 
store  as  his  own,  it  is  hardly  probable  that  his  wife  could  success- 
fully set  up  a  claim  against  the  mortgage  to  Cook.  It  is  not  shown  \ 
that  at  the  time  there  was  any  lien  against  the  property  superior 
to  the  mortgage  to  Cook.  We  think  Craig  &  Adams  should  have 
credit  for  the  amount  paid  upon  the  mortgage — two  hundred  and 
eighty-six  dollars  and  eighty-five  cents.  This,  added  to  the  other 
expenditures  approved,  gives  four  hundred  and  sixty  dollars  and 
sixty  cents,  the  sum  to  be  allowed  them.  They  claim  that  they 
should  be  allowed  two  hundred  and  two  dollars  on  account  of  a 
note  on  which  Adams  was  surety,  which  he  paid,  and  seventy-five, 
dollars  owed  directly  by  Mowrer  to  Adams.  JThjg  mortgage  taken \ 
by  Craig  &  Adams  operated  for  the  benefit  of  ailthe  sureties.  Thgyl 
ought  not  to  be  permitted  to  lessen  the  funds  realized  from  the 
mortgage  by  appropriating  it  to  their  individual  claims.  They  stand 
as  trustees  for  all  the  sureties,  and  are  required  to  use  that  trust 
fund  for  the  benefit  of  the  sureties  alonej  The  goods  realized 
eleven  hundred  and  twenty-six  dollars  and  forty-two  cents;  ex- 
penses and  Cook  mortgage,  four  hundred  and  sixty-five  dollars  and 
eighty-five  cents;  having  six  hundred  and  sixty  dollars  and  fifty- 
seven  cents  to  be  paid  for  benefit  of  sureties.    One-half  of  this  sum 


PAYMENT    WITHOUT   COMPULSION"  687 

the  Hoovers  are  entitled  to  recover,  for  which  a  decree  and  judg- 
ment will  be  entered  in  this  court. 

The  Hoovers  recovered  judgment  against  Craig  &  Adams  in  this 
action   for  eight  hundred   and    forty-seven   dollars   and   ninety-six 
cents.     No  complaint  is  made  thereof,  and  no  appeal  is  taken  there- 
from ;  it  is  not  for  consideration  in  this  case.     The  decree  dismiss 
ing  the  cross-bill  is  reversed. 

Accord:    Scribner  v.  Adams,  73  Maine  541. 


SECTION  8.    PAYMENT  BY  SURETY  WITHOUT 
COMPULSION 

ROBERT  HITCHBORN  v.  CRAWFIRD  S.  FLETCHER 
66  Maine  209  (1877). 

Appleton,  C.  J. :  The  parties  to  this  suit  signed  as  sureties  for 
Wilson  Randall  a  note  of  which  the  following  is  a  copy: 

I     "$530.  Searsport,  Aug.  19,  1868. 

"One  year  from  date  for  value  received  we  promise  to  pay  P. 
Simonton  or  order  five  hundred  and  thirty  dollars  with  interest. 

"Wilson  Randall, 
"Robert  Hitc.hborn, 
"C.  S.  Fletcher,  Security." 

If  the  defendant,  having  signed  as  surety,  were  prima  facie  to  be 
regarded  as  surety  for  those  whose  signatures  precede  his  own,  still 
parol  evidence  is  undoubtedly  admissible  to  show  his  true  relation 
to  the  note.  In  the  present  case  it  satisfactorily  appears  that  both 
plaintiff  and  defendant  were  sureties  for  Wilson  Randall. 

The  note  having  been  sued  and  the  plaintiff  having  paid  the  same 
before  judgment,  he  now  claims  contribution  of  the  defendant. 

It  is  in  proof  that  the  payee  of  the  note  for  a  valuable  considera- 
tion had  given  time  to  the  principal.  The  plaintiff  was  a  witness 
and  testifies  that  when  he  paid  the  note  he  was  ignorant  of  any  such 
agreement,  that  the  defendant  had  never  informed  him  of  its  exist- 
ence, and  that  he  settled  the  suit  in  good  faith,  believing  he  was 
legally  liable.     The  defendant  was  not  a  witness. 

The  question  presented  is  whether  upon  these  facts  he  can  recover 
his  contributory  share,  of  the  defendant. 

By  becoming  sureties,  each  impliedly  promised  the  other  that  Tie 
would  faithfully  perform  his  part  of  the  contract  and  pay  his  pro- 
portion of  loss  in  case  of  the  insolvency  of  the  principal.     Crosby 

jO    & 


688 


RIGHT    OF    CONTRIBUTION 


v.  Wyatt,  23  Maine  156;  Dole  v.  Warren,  32  Maine  94.  Tkcsnrety] 
is  not  obliged  to  delay  payment  until  suit  is  brought.  His  liability1' 
accrues  upon  the  maturity  and  nonpayment  of  the  contract  foi 
which  he  is  a  surety.  When  one  of  two  persons,  who,  as  surety  for 
a  third,  signed  together  with  the  principal  a  joint  and  several 
promissory  note,  which  he  paid  on  its  becoming  due,  though  no 
demand  had  been  made  on  him;  upon  an  action  brought  against 
the  maker,  it  was  held  that  such  payment  could  not  be  considered  as 
voluntarily  made,  and  that  he  might  sue  his  cosurety  for  contri- 
bution. Pitt  v.  Purssord,  8  M.  &  W.  538.  Much  more,  then,  is 
not  a  payment  voluntary,  when  the  surety  pays  upon  suit,  and  to 
avoid  further  costs ;  for  the  general  rule  is  that  a  surety,  who  de- 
fends an  action  brought  for  money  deficient,  can  not  claim  contri- 
bution of  his  cosureties  for  costs,  unless  he  was  authorized  by 
them  to  defend.  DeColyar  on  Guaranty,  348.  Here,  there  was  no 
authorization  or  direction  to  defend ;  and,  so  far  as  the  plaintiff  and 
the  defendant  know,  there  was  no  existing  defense  which  could 
"be  made.  One  surety  may  be  discharged  from  his  principal  obliga- 
tion, without  discharging  his  cosureties.  In  such  case  he  will  not 
be  relieved  from  his  liability  to  them  for  contribution.  Clapp  v. 
Rice,  15  Gray  557;  Boardman  v.  Paige,  11  N.  H.  431.  If  a  surety, 
with  a  full  knowledge  of  the  facts  under  a  mistaken  belief  of  lia- 
bility, makes  a  payment  when  he  is  under  no  legal  obligation,  it 
is  to  be  regarded  as  a  voluntary  payment  for  which  he  can  not 
claim  contribution.  Bancroft  v.  Abbott,  3  Allen  524.  But  if  ini 
ignorance  of  the  facts  and  in  good  faith  he  makes  payment,  when  If 
if  all  the  facts  were  known  he  would  not  be  liable ;  he  can  compelf 
contribution,  if  he  is  guilty  of  no  neglect  in  such  want  of  knowl-'J 
edge.  Without  knowledge  of  the  facts  constituting  a  defense  he 
could  not  defend.  The  defendant,  though  sued,  gave  no  notice  of 
any  existing  defense  nor  did  he  know  of  any.  Both  plaintiff  and  de- 
fendant, as  far  as  they  know,  when  sued  were  liable  upon  the  note. 
They  were  not  required  to  wait  for  a  judgment  or  the  issuing  of  an 
execution.  Either  might  make  the  payment  and  stop  any  additional 
expense.  In  Warner  v.  Morrison,  3  Allen  566,  it  was  held  to  be  no 
defense  to  an  action  for  contribution  among  cosureties  that  the 
plaintiff,  who  paid  the  debt,  did  not  avail  himself  of  the  defense 
of  usury,  if  he  was  ignorant  of  the  fact  of  such  usury.  It  can, 
assuredly,  make  no  difference  in  the  legal  rights  of  parties  whether) 
the  defense  is  usury  or  delay  given  to  the  principal,  if  the  surety 
is  alike  ignorant  in  either  case  of  any  existing  defense,  and  without 
fault  for  such  ignorance  when  the  payment  is  made. 

It  is  written  of  old,  "be  not  surety  above  thy  power ;  for  if  thou 
be  surety,  take  care  to  pay  it."  The  plaintiff  testified  that  the  de- 
fendant said  "he  wanted  what  was  right  in  the  premises."  This  is 
not  contradicted.     What  is  right  is  that  the  defendant  should  bear 


A 


PAYMENT   WITHOUT    COMPULSION  689 

with  the  plaintiff  his  share  of  the  burden  they  both  assumed,  and 
not  that  the  plaintiff  without  fault  should  bear  the  whole. 
Defendant  defaulted. 

Accord :  Hardell  v.  Carroll,  90  Wis.  350,  63  N.  W.  275 ;  Craig  v.  Craig,  5 
Rawle  91;  Hotham  v.  Berry,  82  Kans.  412,  108  Pac.  801;  Guckenheimer  & 
Bros.  Co.  v.  Kann,  243_  Pa.  75,  89  Atl.  807. 

In  Glasscock  v.  Hamilton,  62  Tex.  143,  it  is  held  that  no  contribution  can  be 
enforced  against  a  cosurety  by  a  surety  who  has  paid  the  debt  without  com- 
pulsion where  it  appears  that  the  principal  was  solvent  at  the  time. 

See  also  Stockmeyer  v.  Oertling,  35  La.  Ann.  467. 

A  surety  who  could  have  defended  by  pleading  the  statute  of  limitations 
can  not  recover  contribution  from  his  cosurety.  Gronna  v.  Goldammer,  26  N. 
Dak.  122 ;  Turner's  Admr.  v.  Thorn,  89  Va.  745,  17  S.  E.  323. 

Contra :    Bright  v.  Lennon,  83  N.  Car.  183. 

A  surety  who  pays  a  promissory  note  which  he  could  defeat  because  of  an 
alteration  by  the  addition  of  another  maker  without  his  consent  may  compel 
contribution  from  cosureties  who  signed  the  note  subsequent  to  the  alteration. 
Houck  v.  Graham,  106  Ind.  195,  6  N.  E.  594,  55  Am.  Rep.  727. 

A  surety  who  has  paid  a  note  which  was  void  on  account  of  usury  can  not 
obtain  contribution  from  his  cosureties.  Russell  v.  Failor,  1  Ohio  St.  327,  59. 
Am.  Dec.  631.  " u 


44 — De  Witt. 


V  / 


/ 


CHAPTER  VII 

THE    RIGHT    OF    INDEMNITY 

SECTION  1.    NATURE  OF  THE  RIGHT  OF  INDEMNITY 

LAYER  v.  NELSON 

1  Vernon  456  (1687). 

Where  one  obligee,  that  is  a  surety  is  sued  alone,  by  the  custom 
of  the  city  of  London  he  shall  make  his  cosureties  contribute:  so 
where  a  surety  pays  a  debt,  and  has  no  counter-bond,  by  the  custom 
of  the  city  of  London  he  shall  maintain  an  action  against  the  prin- 
cipal. 


0 


DECKER  v.  POPE 


/ 


1  Selwyn,  Nisi  Prins  (13th  ed.),  91  (1757). 

This  was  an  action  brought  by  an  administrator  de  bonis  non  of 
a  surety,  who,  at  defendant's  request,  had  joined  with  another 
friend  of  defendant's  in  giving  a  bond  for  the  payment  of  the  price 
of  some  goods  that  were  sold  to  defendant ;  and  the  surety  having 
been  obliged  to  pay  the  money,  the  administrator  declared  against 
the  defendant  for  so  much  money  paid  to  his  use. 

Lord  Mansfield  directed  the  jury  to  find  for  the  plaintiff;  ob- 
serving, that  where  a  debtor  desires  another  person  to  be  bound 
with  him  or  for  him,  and  the  surety  is  afterward  obliged  to  pay  the 
debt,  this  is  a  sufficient  consideration  to  raise  a  promise  in  law,  and 
to  charge  the  principal  in  an  action  for  money  paid  to  his  use.  He 
added,  that  he  had  conferred  with  most  of  the  judges  upon  it,  and 
they  agreed  in  that  opinion. 

691 


692  RIGHT    OF    INDEMNITY 


ISAAC  APPLETON  ET  AL.  v.  TIMOTHY  BASCOM  ET  AL. 
3  Mete.  (Mass.)  169  (1841). 

This  was  an  action  of  debt  on  a  bond  for  the  liberty  of  the  prison 
limits,  and  was  submitted  to  the  court  on  the  following  facts: 
Timothy  Bascom,  one  of  the  defendants,  was  administrator  of  the 
estate  of  Clement  Bascom,  and  the  plaintiffs  were  his  sureties  on 
his  administration  bond,  which  they  executed  with  him  on  the  3d 
of  November,  1835.  On  the  21st  of  April,  1840,  the  plaintiffs 
jointly  paid  $230/  for  said  Timothy's  default,  which  they  were 
bound  to  pay  byreason  of  having  been  his  sureties  on  said  bond. 

At  the  December  term,  1840,  of  the  Court  of  Common  Pleas,  the 
plaintiffs  recovered  judgment  against  said  Timothy,  in  an  action 
for  money  paid,  the  amount  which  they  had  paid,  as  aforesaid,  by 
reason  of  his  default.  In  that  action,  they  filed  a  specification  of 
their  claims,  setting  forth  that  they  demanded  $230  paid  by  them 
on  account  of  their  having  signed  a  bond  as  sureties  of  the  said 
Timothy  as  administrator  of  Clement  Bascom.  Execution  issued 
on  said  judgment,  and  said  Timothy  was  committed  to  the  jail  at 
Lowell,  on  the  23rd  of  February,  1841,  and  on  the  same  day  he, 
and  the  other  defendants,  as  his  sureties,  executed  the  bond  on 
which  the  present  action  was  brought.  Immediately  after  the  exe- 
cution of  the  bond,  said  Timothy  went  without  the  exterior  limits 
of  the  city  of  Lowell,  without  the  consent  of  the  plaintiffs,  and  with- 
out being  discharged  by  law.  He  afterward  took  the  poor  debtors' 
oath. 

Wild,  J. :  This  is  an  action  of  debt  on  a  bond  given  for  the  lib- 
erty of  the  prison  limits,  and  the  question  is,  whether  the  principal 
in  the  bond,  after  the  giving  of  said  bond,  committed  an  escape  by 
going  without  the  prison  limits.  And  this  depends  on  ascertaining 
the  time  when  the  contract  was  made,  on  which  the  judgment  was 
recovered,  upon  which  the  execution  issued,  by  virtue  of  which  the 
said  principal  in  the  bond  was  committed  to  prison.  The  said  judg- 
ment was  recovered  in  an  action  for  money  paid  by  the  plaintiffs, 
and  which  they  were  obliged  to  pay,  for  said  principal,  by  reason 
of  his  breach  of  the  condition  of  an  administration  bond,  which  they 
had  executed  as  his  sureties. 

The  action  was  founded  on  an  implied  promise ;  and  the  ques- 
tion is  reduced  to  this,  whether  the  promise  was  implied  by  law  at 
the  time  when  the  plaintiffs  became  sureties,  or  not  until  they  paid 
the  money,  when  their  right  of  action  against  the  defendant  first 
accrued.  And  we  think  it  is  well  settled,  that  when  a  surety  be-" 
comes  bound  for  his  principal  and  at  his  request,  the  law  implies 
a  promise  of  indemnity  by  the  principal  to  the  surety  to  repay  the 


NATURE    OF    RIGHT  693 

latter  all  the  money  he  may  be  compelled  to  pay  the  creditor  in  con- 
sequence of  his  assumed  liability.  So  the  law  is  laid  down  in  Wood 
v.  Lda^id7T~MeTcT389,  and  so  it  was  decided  in  Gibbs  v.  Bryant, 
1  Pick.  121,  in  Howe  v.  Ward,  4  Greenl.  200,  and  in  many  other 
cases.  In  Gibbs  v.  Bryant  there  had  been  given  a  written  promise 
of  indemnity,  and  the  court  say  that  "the  written  contract  produced 
contained  nothing  more  than  what  the  law  would  imply."  And  so 
the  law  has  been  well  settled  for  a  long  time,  although  in  ancient 
times  no  action  at  law  could  be  maintained  where  a  surety  had  paid 
the  debt  of  his  principal ;  the  only  remedy  being  to  be  had  in  a 
court  of  equity.  But  very  many  equity  principles  have  been  adopted 
by  courts  of  law  in  modern  times,  allowing  actions  to  be  maintained 
on  implied  promises  by  the  party  to  do  what  justice  and  equity  re- 
quire to  be  done,  where  there  is  no  express  contract.  And  t.he.  im- 
plied promise  of  indemnity  in  the  present  case  must  be  considered 
as  madedit  the  time  when  the  plainfiffsjjecame  responsible  to  the 
creditor  on  the  bond. 
~~TheT  plaintiff's  liability  was  the  consideration  of  the  principal's 
implied  promise  of  indemnity,  and  the  promise  must  be  considered 
as  made  at  the  time  when  that  liability  was  assumed.  And  the 
plaintiffs,  when  they  paid  the  money,  might  have  declared  on  said 
implied  promise,  or  for  money  paid,  in  common  form,  as  the  dec- 
laration was.  The  time  of  making  the  contract  is  not  to  be  deter- 
mined by  the  form  of  the  action. 

The  other  objection  made  by  the  defendants'  counsel  is,  that  the 
law  does  not  imply  a  promise  to  the  plaintiffs  jointly;  and  the  case 
of  Gould  v.  Gould,  8  Cow.  168,  seems  to  countenance  this  objec- 
tion. But  a  more  reasonable  doctrine  is  maintained  in  other  cases. 
Osborne  v.  Harper,  5  East  225;  Pearson  v.  Parker,  3  N.  H.  366; 
Jewett  v.  Corn  forth,  3  Greenl.  107.  According  to  the  decisions  in 
these  cases,  when  money  is  paid  by  two  or  more  sureties  jointly 
for  the  principal,  or  when  the  money  paid  is  raised  on  their  joint 
credit,  their  proper  remedy  for  reimbursement  is  a  joint  action; 
but  if  they  pay  separately,  then  their  proper  remedy  is  by  separate 
action,  and  a  joint  action  can  not  be  maintained.  In  either  case, 
however,/the  action,  whether  joint  or  several,  is  founded  on  the  / 
promise  of  indemnity  expressly  or  impliedly  made  at  the  time  when'' 
the  sureties  first  became  bound.  When  a  promise  is  implied  by- 
law, such  a  promise  is  implied  as  will  give  to  the  party  who  may 
suffer  damage  by  the  breach  of  it  a  suitable  and  proper  remedy. 
We  consider,  therefore,  the  promise  of  Bascom,  to  indemnify  his 
sureties,  as  made  to  them  jointly  and  severally ;  and  as  it  appears 
What  they  paid  the  money,  which  they  became  liable  to  pay,  jointly, 
they  were  well  entitled  to  a  joint  action  against  him  for  reim- 
bursement. 

Judgment   for  the  plaintiffs. 


694 


RIGHT   OF    INDEMNITY 


One  having  signed  a  note  as  surety  for  two  principals  and  having  been 
compelled  to  pay  it,  may  sustain  a  several  action  against  either  one  of  the 
principals  and  recover  the  amount  paid.    Clay  v.  Severance,  55  Vt.  300. 

The  right  to  indemnity  was  allowed  even  though  the  surety  signed  without    • 
the  knowledge  of  the  principal.   Hecker  v.  Mahler,  64  Ohio  St.  398,  60  N.  E. 
555. — ' 

Contra:  Carter  v.  Black,  4  Dev.  &  Bat.  Law  (N.  Car.)  425;  Executors  of 
White  v.  White,  30  Vt.  338;  Devereux  &  Battle's  N.  C.  Equity  Rep. 


CONSOLIDATED   EXPLORATION   AND   FINANCE   COM- 
PANY  v.   MUSGRAVE 

1  L.  R.  Ch.  Div.  37  (1900). 

The  object  of  this  action  was  to  obtain  the  retransfer  to  the 
plaintiffs  (a  company  in  voluntary  liquidation)  of  1,500,  £1  prefer- 
ence shares  in  the  London  Woollen  Company,  Limited,  the  second 
of  the  two  defendants  on  the  record,  which  had  been  transferred 
by  the  plaintiff  company  into  the  name  of  Christopher  George  Mus- 
grave,  the  first  defendant  on  the  record.  The  plaintiffs  claimed, 
inter  alia,  a  declaration  that  the  defendant  Musgrave  was  trustee 
for  them  of  the  shares,  and  retransfer.  The  defendant  Musgrave 
pleaded  that  he  was  entitled  to  hold  the  shares  as  security  for 
£  1.500,  estreated  bail  given  to  produce  a  prisoner  for  criminal 
prosecution,  and  certain,  costs,  under  an  arrangement  made  between 
himself  and  one  Ainsworth,  acting,  as  he  alleged,  on  behalf  of  the 
plaintiff  company. 

At  the  end  of  the  year  1897  criminal  proceedings  were  pending 
against  Ainsworth,  one  Jordan,  and  a  number  of  others,  in  regard 
to  fraud  committed  in  promoting  a  company  called  Thomas  Edward 
Brinsmead  &  Sons,   Limited. 

The  terms  on  which  the  defendant  Musgrave  claimed  to  hold  the 
shares  as  security  were  comprised  in  the  following  letter  from  him 
to  Ainsworth,  also  dated  December  23,  1897 : 

"In  consideration  of  your  transferring  into  my  name  1,500  shares 
in  the  London  Woollen  Company,  Limited,  I  agree  to  become 
surety  for  you  and  Mr.  Francis  Richard  Jordan  in  the  sum  of 
£1,500,  each  to  appear  at  the  High  Court  of  Justice  on  the  trial  of 
Regina  v.  Brinsmead  and  others  and  also  to  enter  into  the  required 
recognizances  with  regard  thereto  and  as  to  payment  of  costs. 

"And  I  further  agree  in  the  event  of  my  not  being  called  upon 
under  the  terms  of  my  recognizances  to  make  any  payment  to  re- 
transfer the  said  shares  to  you  or  in  the  event  of  my  being  called 
upon  to  provide  any  sum  of  money  to  dispose  only  of  sufficient 
shares  to  recoup  me  for  the  amount  so  paid  by  me,  it  being  clearly 


NATURE   OF   RIGHT  695 

understood  on  the  other  hand  that  should  I  be  called  upon  to  pay 
such  an  amount  as  the  shares  in  question  are  not  sufficient  to  real- 
ize that  you  will  pay  me  anv  such  amount  over  and  above  the 
amount  realized  by  the  sale  of  the  shares." 

At  that  time  an  application  had  been  made  for  a  writ  of  certi- 
orari to  remove  from  the-  Central  Criminal  Court  to  the  Queen's 
Bench  Division  of  the  High  Court. 

Musgrave  gave  bail  in  the  stipulated  amount  for  the  appearance 
of  Ainsworth  and  Jordan  in  the  High  Court.  The  application  for 
a  writ  of  certiorari,  however,  fell  through  owing  to  the  fact  that 
one  of  the  persons  prosecuted  absconded.  The  defendant  Mus- 
grave then  gave  bail  for  the  production  of  Ainsworth  to  meet  his 
trial  at  the  Central  Criminal  Court,  in  the  amount  of  £1,500,  and 
gave  similar  bail  for  the  production  of  Jordan. 

Jordan  absconded,  and  bail  given  for  his  production  was  estreaieiL, 

The  transfer  from  the  plaintiff  company  to  Musgrave  was  made  /; 
in  pursuance  of  a  resolution  of  persons  purporting  to  act  as  the  , 
board  of  directors  of  the  plaintiff  company  on  December  23,  1897, 
evidenced  by  a  minute  in  the  minute-book  of  the  plaintiff  company 
in  the  following  terms :  "The  matter  of  guaranteeing  costs  Re 
Brinsmead  was  considered,  and  the  Consolidated  Contract  Cor- 
poration having  agreed  to  pay  by  way  of  premium  £100,  and  guar- 
anteeing to  indemnify  this  company  against  loss,  it  was  resolved 
that  1,500  shares  (London  Woollen  Preference)  be  lodged  with 
Mr.  C.  C.  Musgrave  on  receipt  of  cheque  from  the  Consolidated 
Contract  Corporation,  and  a  further  1,000  London  Woollen  Pref- 
erence shares  with  Mr.  J.  Pronk." 

North,  J.,  after  deciding  that,  apart  from  the  question  of  ille- 
gality, the  defendant  Musgrave  would  have  had  a  right  to  the  se- 
curity he  claimed,  continued :  The  second  question  is  whether  thg 
acceptance  of  security  by  Musgrave  through  Ainsworth  was  an  il- 
legal bargain ;  in  my  opinion  it  was.  It  is  said  that  the  circum- 
stances of  this  case  are  outside  the  rule  exemplified  by  Wilson  v. 
Strugnell,  7  Q.  B.  D.  548  (1)  ;  Herman  v.  Jeuchner,  15  Q.  B.  D. 
561  (2)  ;  that,  though  those  cases  show  that  an  accused  person  can 
not  himself  give  security  legally  to  his  bail,  the  rule  does  not  apply 
to  cases  where  security  is  given  to  bail  by  a  third  person.  For  that 
proposition  I  find  no  authority  whatever.  It  is  true  that  there  is 
no  authority  addressed  particularly  to  the  distinction  attempted  to 
be  drawn ;  the  exact  case  does  not  seem  to  have  arisen ;  there  is  no 
such  case  in  the  books. 

I  asked  if  a  passage  in  a  single  text-book  could  be  found  ex- 
pressing an  opinion  in  favour  of  the  distinction  raised.  I  was  re- 
ferred to  two  text-books.  The  passages  cited  from  them  do  not 
give  what  I  asked  for.  Both  books  seem  to  me  correctly  to  repre- 
sent the  decisions  in  the  two  cases  I  have  mentioned.  In  Pollock 
on  Contracts  (6th.  ed.,  p.  316)  the  law  is  stated  thus:    "An  agree- 


696  RIGHT    OF    INDEMNITY 



ment  by  an  accused  person  with  his  bail  to  indemnify  him  against 
liability  on  his  recognizances  is  illegal,  as  depriving  the  public  of 
the  security  of  the  bail."  Again,  Leake  (3rd  ed.,  p.  626),  in  his 
valuable  work  on  the  same  subject,  puts  it  in  this  way:  "Any  con- 
tract or  engagement  having  a  tendency,  however  slight,  to  affect 
the  administration  of  public  justice  would  be  illegal  and  void." 
Among  the  instances  he  gives  is  "an  indemnity  given  by  a  defend- 
ant in  a  criminal  case  to  his  bail,  because  in  effect  it  deprives  the 
public  of  the  intended  security  for  the  conduct  of  the  defendant." 
What  the  learned  author  says  corresponds  exactly  with  what  the 
late  Master  of  the  Rolls  says  in  Herman  v.  Jeuchner  (2),  15  Q. 
B.  D.  561.  After  defining  broadly  a  contract,  he  says  (3),  15  Q. 
B.  D.  563 :  "When  the  object  of  either  the  promise  or  the  con- 
sideration is  to  promote  the  committal  of  an  illegal  act,  the  contract 
itself  is  illegal  and  can  not  be  enforced.  In  the  present  case  the 
defendant  required  the  plaintiff  to  deposit  £49  for  the  space  of  two 
years,  and  in  consideration  of  the  plaintiff  so  doing  the  defendant 
promised  the  plaintiff  to  become  surety  for  him :  the  plaintiff  on 
his  part  undertook  to  deposit  the  £49.  That  is  the  substance  of  the 
contract ;  is  it  illegal  ?  To  my  mind  it  is  illegal,  because  it  takes 
away  the  protection  which  the  law  affords  for  securing  the  good 
behaviour  of  the  plaintiff.  When  a  man  is  ordered  to  find  bail, 
and  a  surety  becomes  responsible  for  him,  the  surety  is  bound  at 
his  peril  to  see  that  his  principal  obeys  the  order  of  the  court :  at 
least  this  is  the  rule  in  the  criminal  law ;  but  if  money  to  the  amount 
for  which  the  surety  is  bound  is  deposited  with  him  as  an  indemnity 
against  any  loss  which  he  may  sustain  by  reason  of  his  principal's 
conduct,  the  surety  has  no  interest  in  taking  care  that  the  condition 
of  the  recognizance  is  performed.  Therefore  the  contract  between 
the  plaintiff  and  the  defendant  is  tainted  with  illegality." 

When  Musgrave  became  bail  he  had  cast  upon  him  duties  and 
given  to  him  corresponding  powers  to  enforce  them,  which  powers 
no  third  person  who  became  responsible  could  have.  What  these 
powers  are  and  the  reasons  for  them  in  criminal  cases  are  stated  in 
Petersdorff  on  Bail,  p.  514,  in  these  words:  "Tt; is  essential  for 
the  security  of  the  bail  that  the  principal  should  be  compelled  to 
appear  at  the  time  and  place  specified  in  the  recognizance.  To 
*'\  enable  the  bail  to  effectuate  this  purpose,  they  are  invested  with 
j  the  same  unrestricted  authority  over  the  person  of  the  defendant, 
as  we  have  already  seen  is  conferred  upon  them  in  civil  cases.  In- 
deed, in  criminal  proceedings,  the  power  possessed  by  the  bail,  in 
obliging  the  accused  to  fulfil  the  terms  of  the  recognizance,  should 
be  even  more  unlimited,  as  by  not  rendering  him  they  not  only 
forfeit  to  the  public  the  penalties  imposed  by  law,  but  perhaps 
create,  in  crimes  of  a  flagrant  nature,  an  impossibility  of  the  ends  of 
justice  being  accomplished.  Hence  they  may  seize  his  person  at 
any  time  (as  on  a  Sunday),  or  at  any  place,  to  carry  him  to  a  jus- 


t' 


WHEN    THE   RIGHT   ARISES  697 

tice  to  find  new  sureties,  or  be  committed  in  their  discharge,  and  in 
surrendering  the  principal  they  may  command  the  co-operation  of 
the  sheriff,  and  any  of  his  officers."  Therefore,  it  is  essential  that 
the  person  giving  bail  should  be  interested  in  looking  after  and,  if 
necessary,  exercising  the  legal  powers  he  has  to  prevent  the  accused 
from  disappearing:  this  is  essential  for  the  protection  of  the  public, 
and  anything  that  tenaTlto  prevent  or  hinder  him  so  doing  is  il- 
legal. Why  is  it  not  equally  illegal  for  the  bail  to  be  indemnified 
by  a  third  person,  it  being  admittedly  illegal  to  be  indemnified  by 
the  prisoner?  The  reason  of  the  illegality  is  the  same  in  each  case. 
It  is  said  that  the  public  still  have  in  the  person  who  gives  indemnity 
the  same  security  of  a  person  whose  interest  it  is  to  produce  the 
prisoner.  That  is  not  so,  for  he  has  not  the  power  of  the  bail.  It 
seems  to  me,  therefore,  that  the  security  given  by  Ainsworth  to1 
Musgraye  is  illegal  and  void. 

Then  it  is  said  that  the  plaintiff  company  can  not  get  back  the 
shares.  I  do  not  see  why.  I  can  understand  that  if  Ainsworth 
were  proceeding  against  Musgrave  there  would  be  a  difficulty  in 
his  way.  Butjh:  turns  out  that  the  shares  do  not  belong  to  Ains- 
worth but  to  the  plaintiff  company,  who  are  in  no  way  participators 
in  the  illegality.  I  must  declare  that  the  security  is  illegal  and 
void,  and  make  an  order  for  reconveyance. 

Accord:   United  States  v.  Ryder.  110  U.  S.  729,  28  L.  ed.  308. 

Contra:  Carr  v.  Davis,  64  W.  Va.  522,  63  S.  E.  326,  20  L.  R.  A.  (N.  S.) 
58n,  16  Ann.  Cas.  1031. 

In  Jones  v.  Orchard,  16  C.  B.  614,  it  was  held  that  a  contract  for  indemnity 
on  a  bail  bond  is  valid  to  the  extent  of  the  costs  paid  by  the  surety  on  the  de- 
fault of  the  principal,  though  invalid  as  to  the  penalty  paid. 

SECTION  2.   WHEN  THE  RIGHT  ARISES 


WM.  W.  RICE  v.  JOHN^R1  SOUTHGATE, 

-        /  "     4sr 

16  Gray  (Mass.)  142  (1860). 

The  case  was  submitted  to  the  judgment  of  the  court  upon  the  b  ' 
following  facts :  The  lot  was  bought  by  the  tenant  in  1846,  and 
has  since  been  occupied  by  him  with  his  family  as  a  residence,  and 
is  worth  at  least  two  thousand  dollars  above  a  mortgage  thereon. 
On  the  16th  of  May,  1853,  the  tenant,  with  Charles  White  and  Eli 
Thayer,  made  a  joint  and  several  promissory  note  for  $1,000,  which 
was  paid  by  White,  on  the  14th  of  May,  1859;  and  on  the  16th  of 
November,  1854,  made  a  note  for  $1,166.66,  which  was  signed  by 
White  and  Thayer  as  sureties,  and  paid,  with  interest,  by  White  on 
the  21st  of  July,  1859;  and  White  proved  the  sums  so  paid,  amount- 
ing to  $1,821.94,  against  the  tenant's  estate  in  insolvency. 


E 


698  RIGHT    OF    INDEMNITY 


Bigelow,  C.  J. :  The  question  in  this  case  is,  whether,  on  the 
facts  stated,  there  are  any  debts  proved  against  the  estate  of  the 
tenant  in  insolvency  to  the  amount  of  eight  hundred  dollars,  which 
were  contracted  prior  to  the  passage  of  St.  1855,  ch.  238,  under 
which  he  claims  to  hold  the  demanded  premises  as  a  homestead. 
If  there  are,  then  it  is  clear  that  he  can  not  avail  himself  of  the 
exemption  secured  by  that  statute ;  because  by  the  third  section  it 
is  provided  that  no  property  shall  be  exempted  from  levy  on  execu- 
tion for  a  debt  contracted  previously  to  the  passage  of  the  act;  and 
all  the  estate  of  the  debtor,  which  might  have  been  taken  on  execu- 


tion against  him  at  the  time  of  the  commencement  of  the  proceed- 
ings in  insolvency,  vested  in  his 
Woods  v.  Sandford,  9  Gray  16. 


ings  in  insolvency,  vested  in  his  assignee  under  St.  1838,  c.  163  5. 


Upon  well-settled  principles,  it  is  clear  that  the  contract  of  a 
principal  with  his  surety  to  indemnify  him  for  any  payment  which 
the  latter  may  make  to  the  creditor  in  consequence  of  the  liability 
assumed  takes  effect  from  the  time  when  the  surety  becomes  re- 
sponsible for  the  debt  of  the  principal.  It  is  then  that  the  law 
! raises  the  implied  contract  or  promise  of  indemnity.  /No  new  con- 
tract is  made  when  the  money  is  paid  by  the  suretynTuT~the  pay- 
ment relates  back  to  the  time  when  the  contract  was  entered  into  by 
which  the  liability  to  pay  was  incurred.  The  payment  only  fixes 
the  amount  of  damages  for  which  the  principal  is  liable  under  his 
original  agreement  to  indemnify  the  surety.  Gibbs  v.  Bryant,  1 
Pick.  121 ;  Appleton  y^ascom,  3  Mete.  169.  The  same  principle 
is  adopted  in  our  rnsolvenTlaw,  in  which  it  is  provided  that,  in  case 
of  the  payment  of  any  sum  by  any  surety  of  a  debtor  in  any  con- 
tract whatsoever,  the  debt  shall  be  considered  as  contracted  at  the 
time  when  the  contract  on  which  such  payment  has  been  made  was 
originally  entered  into.     St.  1838,  c.  163,  3;  Gen.  St.  c.  118  25. 

It  follows  that  the  (real  pgtat*>_nrriipipr1  by  the  insolvent  debtor 
was  not  exempted  from  levy  on  execution  at  the  suit  of  his  surety 
who  entered  into  the  contract  on  which  he  has  been  held  liable  to 
an  amount  exceeding  eight  hundred  dollars  prior  to  the  passage  of 
the  act  under  which  the  tenant  now  claims  a  homestead  right.  It 
therefore  vests  in  his  assignee. 

Judgment  for  the  defendant. 




SMITH  v.  YOUNGy 

173  Ala.  190,  196,  55  So.  425  (1911). 

j  Mayfield,  J. :  Although  a  surety  can  not  maintain  an  action 
against  his  principal  on  the  liability  created  by  the  suretyship,  until 
such  surety  has  paid  the  debt  or  a  part  thereof,  it  is  because  the 
right  of  action  does  not! come  into  existence  until  such  payment,  ~w^- 


WHEN    THE    RIGHT   ARISES  699 


djJA. 


and  not  because  the  relation  of  debtor  and  creditor  did  not  thereto- 
fore exist.  The  same  thing  is  true  as  to  the  creditor  or  payee  of  a 
note  signed  by  the  principal  and  surety.  The  payee  can  not  sue  the 
principal  or  the  surety  until  the  note  is  due,  yet  the  relation  of 
debtor  and  creditor  certainly  exists  from  the  making  of  the  note. 
While  a  surety  probably  could  not  file  a  creditor's  bill  as  to  convey- 
ances by  his  principal  until  he  had  paid  the  surety  debt,  yet  he  is  a 
creditor  within  the  protection  of  the  statutes  from  the  inception  of 
his  contingent  liability;  and,  after  he  has  paid  the  surety  debt,  he 
may  maintain  his  creditor's  bill  against  the  principal  and  other' 
creditoxs_tXL.sjet  aside  fraudulent  conveyances  made  while  the  liability 
of  the  surety  was  contingent,  or  to  have  them  declared  general  as- 
signments.* 


r  /-^ 


URIAH  J.  BULLOCK  v.  BERNARD   M.   CAMPBELL 


• 


9  Gill  (Md.)  182  (1850). 


f  M/~fisZ 


Magruder,  J.:     The  plaintiff  below  (who  is  the  plaintiff  here), 
instituted  this  suit  May  18,  1846,  to  recover  so  much  money  paid 
for,  and  at  the  instance  of  the  defendant.     This  money  was  paid 
by  the  plaintiff  to  the  holder  of  a  promissory  note,  drawn  by  the 
defendant,  payable  to  the  plaintiff,  and  by  him  indorsed.     Upon-^  J 
this  note  the  holder  instituted  a  suit  against  the  plaintiff,  recovered     7 
a   judgment,    which   the   plaintiff  here   paid   in   part,   and    for   the 
amount  paid  by  him,  this  action  was  instituted.     It  was  instituted  t 
more  than   three  years  after  the  note  became   due,  but  less  than 
three  years  after  the  payment  was  made.  ~Pt, 

If  the  plaintiff  has  a  good  cause  of  action,  the  plea  of  limitations 
is  no  bar  to  it,  unless  the  time  is  to  be  computed  from  the  day  the 
money  was  to  have  been  paid.  But  the  statute  does  not  begin  to 
run  in  the  case  of  principal  and  surety,  until  the  time  when  the  r 
payment  is  made  by  the  latter.  This,  if  ever  it  could  have  been 
questioned,  is  now  settled  law.'  See  Gillespie  v.  Creswell,  12  Gill 
&  John.  36. 

The  plaintiff  had  no  cause  of  action,  until  he  was  compelled  to 
pay  the  money,  and  until  he  has  a  right  to  sue,  limitations  can  not 
begin  to  run. 

But  the  plaintiff  paid  only  a  part  of  the  money  due  on  the  note,  (ru-<^^ 
and  it  is  insisted  that  he  must  pay  the  whole  of  it  before  he  can 
sue  for  the  money  paid  by  him.     This  would  be  true,  if  the  suit  A 
was  instituted  upon  the  note  itself.     But  why  not  be  permitted  to 

*Only  part  of  the  opinion. 

Accord :  Smith  v.  Pitts,  167  Ala.  461,  52  So.  402 ;  Loughridgc  v.  Bowland, 
52  Miss.  546. 


tUi 


700 


RIGHT    OF    INDEMNITY 


af 


$P 


sue  for  and  recover,  that  which  he  has  been  obliged  to  pay?  Very] 
much  of  evil  might  arise  to  securities,  if  the  law  required  them  to 
pay  the  whole  amount  of  the  note  in  order  to  recover  that  which 
they  have  paid  for  the  use  of  the  principal.  It  is  said  that  it  gives 
to  securities  a  right  to  make  several  causes  of  action  of  but  one. 
If  this  be  a  fatal  objection  to  the  recovery,  then  when  there  are  two 
securities,  and  each  pays  a  part,  it  would  seem  that  neither  could 
recover.  But  whose  fault  is  it  that  the  balance  is  not  paid?  It  is 
the  fault  of  the  appellee,  and  surely  it  can  be  no  defense  for  him 
in  an  action  brought  to  recover  from  him  what  has  actually  been 
paid  for  him,  that  he,  himself,  has  not  paid  any  part,  although  he  j 
was  bound  to  pay  the  whole.  That  several  suits  may  be  brought 
in  a  case  of  this  description,  if  the  security  is  obliged  to  make  sev- 
eral payments,  was  decided  in  Pownal  v.  Ferrand,  13  Eng.  Com. 
Law  Reports  230. 

This  decision  does  not  allow  a  creditor  to  make  several  claims  of 
one.  The  jiote_is_not-the  plaintifFs  cause  of  action.  He  instituted 
this  suit  for  all  that  he  could  claim  when  it  was  brought,  and  if 
afterward  he  is  obliged  to  pay  another  sum  of  money,  ^because  oi 
a  failure  by  the  defendant  to  pay  the  debt,  he  will  then  have  another 
distinct  cause  of  action  in  which  the  plea  of  limitations  will  be  no 
bar,  until  three  years  after  such  last  payment,  although  it  would  be 
a  bar  to  a  recovery  of  the  earlier  payments,  if  they  were  made  more 
than  three  years  before  the  security  sued  for  the  amount  of  them. 

As  a  further  objection  to  the  plaintiff's  recovery  it  is  urged  that 
he  can  not  maintain  an  action  upon  the  implied  assumpsit,  because 
the  note  contains  an  express  promise  to  pay,  and  there  was  a  con- 
sideration for  it.  But  the  circumstances  show  not  only  the  absence 
of  all  consideration,  as  a  contract  between  the  plaintiff  and  defend- 
ant, but  also,  that  by  the  express  understanding  of  all  the  parties 
to  the  note,  although  in  form,  it  was  payable  to  the  plaintiff,  yet  he 
was  not  to  receive  one  cent  of  the  money  mentioned  in  it.  It  was 
made  payable  to  him,  not  because  he  was  the  person  to  whom  it 
was  due,  but  in  order  that  the  plaintiff,  by  indorsing  it.  might  be 
liable  as  indorser  in  case  the  defendant  failed  to  pay  it  to  the  only 
real  payee.  It  is  a  note  which  the  defendant  was  bound  to  pay, 
but  was  not  at  liberty  to  pay  to  the  person  named  in  it  as  payee.  The 
plaintiff  by  indorsing  it,  has  been  obliged  to  pay  money  which  was 
"  ue  from  the  defendant,  which  the  latter  was  bound  to  pay,  as  it 
wasjhis  debt ;  and  he  has  now  no  right  to  say  that  he  ought  not  to  be 
compelled  to  refund  until  the  plaintiff  has  paid  more  money,  due 
only  from  the  defendant. 

Upon  neither  of  the  grounds  which  have  been  relied  on,  can 
this  judgment  be  affirmed. 

Judgment  reversed  with  costs,  and  upon  the  statement  of  facts., 
judgment  for  the  plaintiff  according  to  the  agreement. 

Judgment  reversed. 


WHEN    THE    RIGHT    ARISES  701 

CORNELIUS  C.  VERMEULE  v.  YORK  CLIFFS  IMPROVE- 
MENT COMPANY 

105  Maine  350,  74  Ail.  800,  134  Am.  St.  553n  (1909). 

Spear,  J. :  This  is  an  action  brought  by  Cornelius  C.  Vermeule 
against  the  York  Cliffs  Improvement  Company  to  recover  the  sum 
of  $5,694.01  for  so  much  money  paid  by  the  plaintiff  for  the  use 
and  benefit  of  the  defendant  corporation.  The  plaintiff  is  a  resi- 
dent of  the  state  of  New  Jersey  and  John  D.  Vermeule  is  a  resi-  Y 
dent  of  New  York  City.  The  defendant  is  a  domestic  corporation 
of  the  state  of  Maine.  The  writ  contains  the  common  counts  for 
money  paid  and  expended  with  an  account  annexed  of  the  fol- 
lowing tenor: 
"York  Cliffs  Improvement  Company  to  Cornelius  C.  Vermeule,  Dr. 

"To  money  paid  August  1,  1906,  as  surety  on  your  note  dated  the 
24th  day  of  November,  1897.     $5,694.01." 

The  facts  upon  which  this  plaintiff  seeks  to  recover  are  these: 
The  York  Cliffs  Improvement  Company  required  for  its  use  the 
sum  of  $10,000.  for  which,  on  November  24,  1897,  it  executed  and 
delivered  a  demand  note  payable  to  the  order  of  John  D.  Vermeule. 
Upon  the  note  was  this  indorsement:  "This  note  is  given  to  be 
held  by  John  D.  Vermeule  as  collateral  security  for  moneys  to  be 
advanced  by  him  to  York  Cliffs  Improvement  Company  to  pay  its 
outstanding  bills  payable,  accounts  payable  and  current  expenses." 
Then  appears  the  further  indorsement:  "I  hereby  assume  liability  „  -^v 
for  all  money  to  become  due  or  to  be  secured  by  this  note  to  the  ex- 
tent of  11-27  of  the  entire  amount.  C.  C.  Vermeule."  There  is  4 
another  indorsement  upon  the  note  of  a  similar  import  but  immate- 
rial in  the  discussion  of  this  case. 

Now  it  appears  that  John  D.  Vermeule,  having  advanced  pay- 
ments upon  the  note  whereby  C.  C.  Vermeule  became  liable  upon 
his  contract,  on  the  24th  day  of  September,  1901,  brought  suit_  in 
the  Supreme  Court  of  New  Jersey  against  him  for  his  proportion 
of  the  amount  due.  On  the  12th  day  of  June,  1906,  John  D.  Ver- 
meule recovered  judgment  against  C.  C.  Vermeule  upon  which  exe-  _. 
cution  was  issued  and  delivered  to  the  sheriff  for  levy. 
|  Prior  to  the  date  of  this  judgment,  C.  C.  Vermeule  had  filed  a 
bill  in  equity  in  the  court  of  chancery "  for  the  city  of  New  Jersey 
wherein  he  claimed,  among  other  things,  that  John  D.  Vermeule 
had  been,  and  was,  a  copartner  with  himself;  that  their  final  ac- 
counts had  never  been  settled ;  and  praying  for  an  accounting  and 
settlement  of  the  alleged  copartnership  affairs.  This  bill  was  pend- 
ing when  the  above  judgment  and  execution  were  issued. 

Upon  the  rendition  of  the  judgment  at  law  C.  C.  Vermeule,  the 
defendant  in  that  suit,  filed  in  the  equity  suit,  in  which  he  was 


702  RIG  PIT   OF    INDEMNITY 

plaintiff,  a  prayer  for  an  injunction  to  restrain  the  collection  of  the 
judgment  and  the  levying  of  the  execution,  whereupon  he  was  re- 
quired by  decree  of  the  court  to  deposit  with  it  the  sum  of  money 
due  upon  the  execution,  to  be  held  to  await  the  determination  of 
the  bill  and  further  order  of  the  court.  The  deposit  was  made  by 
C.  C.  Vermeule  as  required  and,  at  the  rate  of  his  writ  in  the  pres- 
ent suit  against  the  defendant  corporation,  the  bill  had  not  been 
determined  and  no  further  order  had  been  made,  the  money  de- 
posited still  remaining  in  the  custody  of  the  court.  Upon  making 
the  deposit  C.  C.  Vermeule  took  the  following  receipt : 

"Whereupon  the  said  C.  C.  Vermeule  did  pay  and  deposit  in  court 
the  sum  of  $5,694.01,  as  appears  by  the  record  of  the  clerk  of  said 
court  as  follows : 

"In  Chancery  of  New  Jersey 

"Between 

"Cornelius  C.  Vermeule,  Complainant, 

"and 

"John  D.  Vermeule  et  alv  Defendants. 

"On  Bill,  etc. 

•  "Received,  this  first  day  of  August,  one  thousand  nine  hundred 
and  six,  of  Cornelius  C.  Vermeule,  through  McCarter  and  English, 
his  solicitors,  the  sum  of  five  thousand  six  hundred  and  ninety- 
four,  dollars  and  one  cent  ($5,694.01),  being  the  amount  due  at  this 
time  from  the  said  Cornelius  C.  Vermeule,  complainant  above 
named,  to  John  D.  Vermeule,  the  defendant,  upon  a  judgment  ob- 
tained iri  the  New  Jersey  Supreme  Court  on  the  twelfth  day  of 
June,  nineteen  hundred  and  six,  in  a  case  therein  pending,  wherein 
said  John  D.  Vermeule  was  plaintiff,  and  the  said  Cornelius  C. 
Vermeule  was  defendant." 

Upon  this  state. of  facts  the  plaintiff  in  the  present  action  con-\ 
tends  that  the 'case  shows  a  complete  discharge  of  the  defendant 
company  for  that  proportion  of  the  defendant's  note  for  which  he  be- 
came surety.  -  On  the  other  hand  the  defendant  claims  that  inas-J 
much  as  the  bill  in  equity  has  not  been  fully  determined  and  no 
further  order  of  the  court  made  in  regard  to  the  disposal  of  the 
deposit,  the  defendant's  liability  upon  the  note  is  not  discharged 
since  it  says  it  has  never  received  and  does  not  have  any  possession, 
use  or  control  of,  the  amount  deposited  or  any  part  thereof.  , 

It  is  well  settled  in  this  state  that  in  an  action  by  a  surety  against  I  ) 
his  principal  it  is  necessary  for  the  plaintiff  to  prove  that  he  has/, 
paid  the  debt  or  discharged  the  principal  for  the  amount  which  hef 
seeks  to  recover,  in  order  to  maintain  his  action.     Ingalls  v.  Den-j 
nett,  6  Maine  79;  Emery  v.  Hobson,  62  Maine  578;  also  Davis  v. 


WHEN    THE    RIGHT   ARISES  703 


Smith,  79  Maine  351.  When  upon  such  a  contract  in  which  the 
principal  is  liable,  the  surety  either  pays  the  debt  for  which  he  has 
become  liable  or  extinguishes  it  so  that  it  no  longer  is  a  debt 
against  the  principal,  the  law  implies  a  promise  on  the  part  of  the 
principal  to  reimburse  the  surety  for  the  amount  paid.  Therefore 
the  sole  question  in  the  case  at  bar  is,  had  the  plaintiff  paid  the 
debt  for  which  he  became  surety,  or  by  his  act  extinguished  it  as 
a  liability  of  the  principal? 

We  are  of  the  opinion  that  upon  the  facts  reported,  the  defend-' 

I  ant  company  is  discharged  of  its  liability  upon  its  note  to  the  amount 
paid  into  court  by  the  plaintiff  and  that  he  has  paid  the  note  pro 
tanto.     The  facts  clearly  show  that  in  the  equity  court  no  question    , 
whatever  is  raised  respecting  the  validity  of  the  judgment  against 
C.  C.  Vermeule  as  surety  upon  the  note  of  the  defendant  corpora-  "7- 
tion.     Nor  is  any  question  made  that  the  amount  so  paid  was  to    ■ 
be  accounted  for  in  payment  of  the  judgment.     Q,  C.  Vermeule's 
receipt  for  the  deposit  unquestionably  concedes  the  validity  of  the 
judgment  and  the  amount  due  upon  it.     {He  specifically  says, .  "be- 
ing  the  amount  due  at  this  time     *     *     *     to  joHn  D.  Vermeule 
*     *     *     upon  a  judgment  obtained  in  a  New  Jersey   Supreme 
Court,"  etc. 

"The  defendant,  however,  upon  the  effect  of  the  deposit  presents 
the  issue  precisely  as  we  understand  it,  namely:  "This  necessarily 
implies  that  the  money  thus  alleged  to  have  been  so  paid  must  have 
passed  completely  beyond  control  of,  and  the  possibility  of  any  re- 
turn to,  the  plaintiff,  and  at  the  same  time  must  have  passed  into 
the  actual  possession  of,  or  for  the  use  and  benefit  of,  the  de- 
fendant. 

"Now  what  has  occurred?  Has  either  the  plaintiff  thus  parted  . 
with  his  money  or  defendant  thus  received  it,  for  its  use  or  benefit?  ' 
Neither.     Non  constat  yet  what  would  become  of  the  money." 

We  are  unable  to  agree  with  the  defendant's  analysis.  We  see 
no  way  in  which  the  judgment  against  C.  C.  Vermeule  can  be  at- 
tacked. We  regard  the  payment  in  court,  as  a  deposit  for  the  pay- 
ment of  a  judgment  which  is  as  conclusive  upon  C.  C.  Vermeule  as 
if  he  had  paid  the  money  upon  the  execution.  The  only  difference 
between  the  deposit  and  such  payment  being,  that  the  money  due 
upon  the  judgment  of  John  D.  Vermeule  may  be  distributed  accord- 
ing to  the  decree  of  the  equity  court  but  as  the  property  of  the  lat- 
ter. The  fact  that  this  money  may,  under  the  order  of  the  court, 
be  paid  to  the  creditors  of  John  D.  Vermeule,  or  to  C.  C.  Ver- 
meule in  the  settlement  of  the  copartnership  affairs,  in  no  way 
changes  the  effect  of  the  judgment  against  C.  C.  Vermeule,  as  a 
payment  by  him  as  surety  upon  the  defendant's  note.     We  think 


it  does  appear,  as  a  matter  of  law,  that  the  plaintiff  has  paid  the 
amount  of  money,  for  which  he  seeks  to  recover,  for  the  use  and 
benefit-  of  the  defendant  company,  and  that  it  is  fully  discharged 


704 


RIGHT    OF    INDEMNITY 


from  liability  upon  the  note  to  the  amount  of  such  payment.    The 
entry  therefore  should  be, 

Judgment  for  the  plainttift  for  $5,694.01  and  interest  from  Au- 
gust  1,   1906. 

The  acceptance  by  the  creditor  of  the  note  of  the  surety,  in  satisfaction  of 
the  demand,  is  equivalent  to  actual  payment.  Hoe  v.  Buffalo,  N.  Y.,  &c,  R. 
Co.,  37  N.  Y.  297. 


SECTION  3.    AMOUNT  RECOVERABLE 
REED  v.  NORRIS 


2  Mlyne  &  Craig  362  (1837). 

Richard  Bevan  the  younger,  being  indebted  to  his  father,  Rich- 
ard Bevan  the  elder,  in  the  sum  of  £1,000,  gave  to  his  father  a  bond 
in  the  penal  sum  of  £2,000,  dated  the  22d  of  April,  1797,  and  con- 
ditioned to  be  void  upon  payment  of  the  sum  of  £1,000  with  interest 
at  five  per  cent.  Richard  Bevan  the  elder  being,  at  a  subsequent 
period,  indebted  to  Lord  Vernon,  in  the  sum  of  £500,  prevailed) 
upon  his  son,  Richard  Bevan  the  younger,  to  join  him,  as  his  surety^ 
in  a  bond  to  Lord  Vernon  in  the  penal  sum  of  £1,000,  dated  the 
24th  of  August,  1801,  and  conditioned  to  be  void  upon  payment  of 
£500,  and  interest.  Upon  that  occasion,  the  following  indorsement 
was  made  upon  the  bond  for  £1,000,  and  signed  by  both  father 
and  son :  "Whereas,  the  within  bounden  Richard  Bevan  hath,  on 
the  24th  of  August,  1801,  become  jointly  and  severally  bound,  in  ' 
a  certain  bond  or  writing  obligatory,  to  the  Right  Honorable  Lord 
Vernon,  in  the  penal  sum  of  £1,000,  conditioned  for  the  payment  of 
£500  with  interest ;  and  whereas,  the  said  sum  of  £500  is  the  proper 
debt  of  the  said  Richard  Bevan  the  elder,  and  the  said  Richard  Be- 
van the  younger  is  the  surety  of  the  said  Richard  Bevan  the  elder : 
it  is,  in  consideration  thereof,  agreed  that  the  said  Richard  Bevan 
the  younger  shall  not  be  called  upon  to  pay  the  within  mentioned 
principal  sum  of  £1,000,  until  the  said  Richard  Bevan  the  elder  shall 
have  paid  and  satisfied  all  principal  money  and  interest  due  on 
the  said  bond  so  given  to  Lord  Vernon  and  delivered  the  said  bond, 
canceled,  to  the  said  Richard  Bevan  the  younger;  as  witness  our 
hands  this  24th  of  August,  1801." 

The  Lord  Chancellor  :  In  this  case  the  object  is  to  obtain  pay-/ 
ment,  on  the  part  of  an  obligee  in  a  bond  for  £1,000,  of  what  is  due 
for  principal  and  interest  upon  that  bond.  The  demand  is  resisted 
on  various  grounds.  It  appears  that  there  being  a  bond  for  £1,000  L 
in  which  the  son  was  obligor,  and  which  was  given  to  the  father  as 
obligee,  a  debt  arose  between  the  father  and  Lord  Vernon,  and  the 


AMOUNT    RECOVERABLE  /^J 

father  became  indebted  to  Lord  Vernon  in  £500  secured  by  bond, 
and  the_son  became  surety  in  that  bond ;  and  then  this  memorandum 
of  an  agreement  between  the  father  and  son,  was  indorsed  on  the 
bond  for  £1,000.     (His  Lordship  read  the  memorandum.)    *    *    * 

The  other  question  is,  how  far  the  representative  of  the  son,  the 
surety  having  come  to  an  arrangement  with  Lord  Vernon's  execu- 
tors, by  which  the  bond  for  £500  has  been  got  rid  of  and  discharged, 
are  entitled,  as  against  the  father's  estate,  to  demand  more  than 
i   /  they  have  actually  paid  to  Lord  Vernon's  executors  in  exoneration 
I   of  the  liability  of  the  son's  estate  upon  the  bond  for  £500. 

Now,  if  there  had  been  no  authority  upon  this  subject,  I  should 
have  found  very  little  difficulty  in  making  a  precedent  for  deciding 
that,  under  these  circumstances,  the  surety  is  not  entitled  to  demand 
more  than  he  has  actually  paid.     I  take  the  case  of  an  agent.     Why 
is  an  agent  precluded  from  taking  the  benefit  of  purchasing  a  debt 
which  his  principal  was  liable  to  discharge?.  Because  it  is  his  duty 
oil  behalf  of  his  employer,  to  settle  the  debt  upon  the  best  terms  he 
can  ^obtain ;  and  if  he  is  employed  for  that  purpose,  and  is  enabled 
to  procure  a  settlement  of  the  debt  for  anything  less  than  the  whole 
amount,  it  would  be  a  violation  of  his  duty  to  his  employer,  or,  at;, 
least,  would  hold  out  a  temptation  to  violate  that  duty,  if  he  might 
take  an  assignment  of  the  debt,  and  so  make  himself  a  creditor  of  - 
his  employer  to  the  full  amount  of  the  debt  which  he  was  employed . 
to  settle.  "  Does  not  the  same  duty  devolve  on  a  surety  ?    He  enters 
into  an  obligation  and  becomes  subject  to  a  liability,  upon  a  contract 
of  indemnity.     The  contract  between  him  and  his  principal  is,  that 
the  principal  shall  indemnify  him  from  whatever  loss  he  may  sus- 
tain by  reason  of  incurring  an  obligation  together  with  the  prin- 
cipal. '  It  is  on  a  contract  for  indemnity  that  the  surety  becomes  lia- 
ble for  the~debt.     It  is  by  virtue  of  that  situation,  and,  because  he  , 
is  under  an  obligation  as  between  himself  and  the  creditor  .of  his  • 
principal,  that  he  is  enabled  to  make  the  arrangement   with  that^ 
creditor.     It  is  his  duty  to  make  the  best  terms  he  can  for  the  per-  i 
soa-iim-hose  behalf  he  is  acting.     His  contract  with  the  principal  isi  ( 
indemnity,   j  Can  the   surety,  then,  settle  with  the  obligee,  and  in- 
stead of  treating  that  settlement  as  payment  of  the  debt,  treat  it  as 
an  assignment  of  the  whole  debt  to  himself^  and  claim  the  benefit 
of  it,  as  such,  to  the  full  amount;  thus  relieving  himself  from  the 
situation  in  which  he  stands  with  his  principal,  and  keeping  alive 
the  whole  debt? 

As  I  have  said,  I  would  make  a  precedent  if  there  were  none; 
but  it  is  very  satisfactory  to  me  to  find  that  the  question  came  be- 
fore Lord  Eldon,  and  that  he  decided  it  in  the  cases  which  have 
been  cited,  viz.,  Ex  parte  Rushforth,  10  Ves.  420,  and  Butcher  v. 
Churchill,  14  Ves.  567.  Lord  Eldon  did  not  decide  those  cases 
upon  particular  grounds  of  equity  between  the  parties ;  but  he  lays 
De  Witt. 


" 


706 


EIGHT   OF    INDEMNITY 


. 


it  down  as  what  he  considered  to  be  the  rule  of  this  court,  that 
"where  a  surety  gets  rid  of  and  discharges  an  obligation  at  a  less 
sum  than  its  full  amount,  he  can  not,  as  against  his  principal,  make 
himself  a  creditor,  for  the  whole  amount;  but  can  only  claim,  as 
against  his  principal,  what  he  has  actually  paid  in  discharge  of  the 
common  obligation.  I  am  clearly  of  opinion,  therefore,  that  the" 
representatives  of  Richard  Bevan  the  younger  can  in  this  case  claim 
only  the  amount  which  was  actually  paid  in  satisfaction  of  the 
bond  given  to  Lord  Vernon. 

Accord:    Stanford  v.   Connery,  84  Ga.  731,   11    S.  E.  507;   Martindale   v. 
Brock,  41  Md.  571. 


\s 


LA  MOTT  THOMPSON  ET  AL.  v.  LAURA  G.  TAYLOR,  AS 
EXECUTRIX,  ETC.  ^ 


72  N.  Y.  32  (1878). 


This  action  was  brought  to  marshal  the  assets  of  the  estate  of 
said  deceased,  and  to  distribute  them  among  the  creditors. 

In  1870  James  B.  Taylor  died  insolvent,  owing  debts  to  a  large 
sum,  among  which  were  several  promissory  notes,  amounting  m 
all  to  about  $80,000,  on  which  Matteson  was  liable  as  his  accom- 
modation indorser  and  surety.  The  notes  having  become  due,lmd 
Matteson  havmg^BeelT~suea7"  or  threatened  with  suit,  he  arranged 
with  the  holders  to  give  security  for  their  payment,  they  author- 
izing them  to  prosecute  suits  in  their  names,  respectively,  for  the 
purpose  of  collecting  the  notes  out  of  the  estate  of  the  deceased. 
The  referee  herein  found  that  in  so  doing  he  incurred  certain  nec- 
essary and  reasonable  costs  and  expenses,  over  and  above  the  costs 
allowed  in  the  judgments,  amounting  to  $14,091.98,  which  sum  was 
allowed  by  the  referee,  and  disallowed  by  the  Special  Term. 

Rapallo,  J. :  Upon  principles  of  equity,  a  surety,  as  between 
himself  and  his  principal,  stands  upon  a  different  footing,  in  some 
respects,  from  an  ordinary  creditor.  He  is  entitled  to  full  indem- 
nity against  the  consequences  of  the  default  of  the  principal,  and 
is,  therefore,  entitled  to  call  upon  him  for  reimbursement  not  only  of 
what  he  may  have  been  obliged  to  pay  in  discharge  of  the  obligation 
for  which  he  was  surety,  but  also  of  all  reasonable  expenses  legiti- 
mately incurred  in  consequence  of  such  default,  or  for  his  own  pro- 
tection. These  do  not  include  expenses  incurred  in  defending  himself 
against  the  just  claim  of  the  creditor,  nor  remote  and  consequential 
damages  sustained  by  the  surety,  such  as  sacrifices  of  property  for 
the  purpose  of  meeting  his  liability,  loss  of  time,  injury  to  business, 
expenses  incurred  in  seeking  to  avoid  payment,  etc.    But  we  appre- 


AMOUNT    RECOVERABLE  '<->/ 


rt- 


hend  that  I  they  do  include  expenses  reasonably  incurred   for  the- 

purj)0^e-JiOecIiririg_thc  application  of  the  property  of  the  principal 
to  the  payment  of  the  debt  in  exoneration  of  the  surety.  Such  ex- 
penses~"afTwithin  the  principle  of  the  cases  cited  on  the  part  of  the 
respondent. 

These  cases  hold  that,  on  the  debt  becoming  due,  the  surety  may 
go  into  equity  to  compel  the  principal  to  pay,  and  the  creditor  to 
receive  payment ;  and  that  he  may  also,  in  equity,  compel  the  cred-  . 
itor  fd  proceed  against  the  principal   debtor    for  the  collection   of 
-Tits  demand,  upon   giving  security   and   indemnifying  the   creditor   . 
against  delay  and  expenses.     It  can  not  be  doubted,  and  is  substan- 
tially  conceded   by   the   appellant,   that   expenses    incurred   by   the 
surety  in  thus  compelling  action  by  the  creditor  would  be  recovera- 
ble against  the  principal.     These   would  necessarily   include   such 
reasonable  expenses  as  the  creditor  might  incur  in  collecting  his  de- 
mand from  the  principal  and  for  which  the  surety  was  liable,  and 
which  he  might  pay  on  his  contract  to  indemnify  the  creditor. 
In  the  present  case  the  surety,  instead  of  proceeding  in  equity  to 
,',  compel  the  creditors  to  prosecute,   effected  an   arrangement   with 
U  them,  whereby  he  gave  security  for  the  payment  of  their  demands, 
and  obtained  authority  from  them  to  take  the  necessary  proceed- 
ings  in  their  names  to  secure  the  property   of   the   estate   of   the 
j  debtor,  and  its  application  to  the  payment  of  the  debts  for  which 
1  he  was  surety;  and  instead  of  indemnifying  the  creditors  against    • 
the  costs  and  expenses  of  such  proceedings,  he  himself  assumed  and 
paid  them  in  the  first  instance.     By  this  means  the  same  result  was   . 
attained  as  would  have  been  if  the  surety  had,  by  proceeding  in  - 
equity,  compelled  the  creditors  to  proceed  against  those  in  posses-  . 
sion  of  the  estate  of  the  debtor,  and  had  indemnified  the  creditors 
against  the  expenses  of   such  proceedings,   and   subsequently  per-   • 
formed  his  contract  of  indemnity  by  paying  them,  the  only  differ- 
ence being  that  he  procured  the  creditors  to  do  voluntarily  what  a    • 
court  of  equity  would  have  compelled  them  to  do,  and  thus  saved 
to  the  estate  of  his  principal  the  additional  expense  of  proceeding 
in  equity  against  the  creditors. 

^It  is  not  necessary  to  construe  the  Act  of  1858  further  than  to  hold 
it  it  does  not  abrogate  the  principle  of  equity  before  referred  to. 
hether  it  is  declaratory  of  the  same  rule,  as  contended  by  the  re- 
spondent, is  not  material,  as  a  resort  to  the  statute  is  not  required 
for  the  purpose  of  sustaining  the  order  of  the  General  Term. 
The  order  should  be  affirmed,  with  costs  payable  out  of  the  estate. 
All  concur,  except  Church,  Ch.  J.,  absent. 
Order  affirmed. 

Accord  :   Downer  v.  Baxter,  30  Vt.'  467. 


708  RIGHT    OF    INDEMNITY 

MATTHEWS  v.  HALL'S  ADMR. 


21  W.  Va.  510  (1883). 

Snyder,  J.:*     If  the  surety  discharges  the  debt  of  his  principal 

in  whole  or  in  part  for  any  sum  less  than  the  full  amount  he  so/ 

J  discharges,  he  can,  in  the  absence  of  an  express  contract,  recover 

from  his  principal  only  the  amount  actually  paid  by  him.     Blow  v! 


-ft 


principal  only  the  amount  actually  paid  by 
Maynard,  2  Leigh  29.  The  implied  contract  in  such  case  is  that 
the  surety  shall  be  indemnified  only,  and  he  will  not  be  allowed  to 
speculate  out  of  his  principal.  If  he  pays  in  depreciated  bank 
notes,  or  other  money  which  is  below  par,  but  is  taken  by  the' 
creditor  at  par,  he  can  recover  from  the  principal  only  the  par  value 
of  such  money.  Kendrick  v.  Forney,  22  Gratt.  748;  Butler  v.  But4 
ler,  8  W.  Va.  674 ;  Feamster  v.  Withrow,  9  Id.  296.  He  is  entitled 
to  recover  the  amount  actually  paid  by  him,  and  not  the  amount 
extinguished  by  that  payment.  If  he  pays  nothing  he  is  entitled 
to  recover  nothing  from  his  principal.  It  is  on  a  contract  for  in- 
demnity that  the  surety  becomes  liable  for  the  debt.  It  is  by  virtue 
of  that  situation,  and  because  he  is  under  an  obligation  as  between 
himself  and  the  creditor  of  his  principal,  that  he  is  enabled  to  make 
the  arrangement  with  that  creditor.  It  is  his  duty  to  make  the  best 
;  terms  he  can  for  his  principal.  He  occupies  in  that  regard  the  same 
1  position  as  an  agent,  and  can  not  speculate  out  of  his  principal. 
Brandt  on  Sur.  and  Guar.  182. 


17  Mass.  169  (1821). 


AARON  HAYDEN  v.  FREDERICK  CABOT 

Assumpsit  upon  a  written  promise  of  the  following  tenor :  "East- 
port,  June  1,  1814.  Whereas  Aaron  Hayden,  Esq.,  has  this  day 
signed  a  duty  bond,  at  the  Passamaquoddy  custom-house,  for  six 
thousand  forty-one'  dollars,  eighty-two  cents,  being  the  supposed 
amount  of  duties  on  one  hundred  packages  of  goods  imported  on 
the  sloop  Abro,  shipped  by  Constantine  Llufrio,  and  consigned  to 
S.  Bartlet ;  we  jointly  and  severally  promise  to  hold  him  harmless 
from  any  loss  he  may  sustain  by  signing  said  bond."  Signed  by  the 
defendant  and  two  others. 

The  case  was  tried  upon  the  general  issue,  at  sittings  here  before 
the  chief  justice,  during  the  present  term. 

It  \yas  in  evidence   for  the  plaintiff,  that  on  the   11th  of  July, 

*Only  a  part  of  the  opinion. 


AMOUNT    RECOVERABLE  709 

1814,  the  British  forces  captured  Eastport,  and  kept  possession  of 
it  with  a  military  force ;  that  they  got  possession  of  the  custom- 
house, and  of  the  bond  referred  to  in  the  above-written  paper, 
among  other  documents  and  papers ;  that  certified  copies  of  the 
bonds  in  the  custom-house  were  preserved  by  the  collector;  that 
after  this  a  monition  was  posted  up,  directing  the  obligors  in  all  the 
bonds  to  appear  at  Halifax,  and  show  cause  why  they  should  not 
be  held  to  pay  the  bonds  to  the  captors;  that  in  March,  1815,  a 
capias  was  issued  against  the  obligors ;  that  the  plaintiff,  and  all 
the  other  obligors  (except  one  who  was  arrested,  and  carried  to 
Halifax,  and  there  detained  some  time),  fled  to  avoid  the  process; 
that  the  plaintiff  came  to  Boston  with  his  family,  and  remained  here 
until  May,  1815,  when  he  returned  to  the  neighborhood  of  East- 
port;  that  Eastport  was  restored  to  the  United  States  in  June,  1817, 
that  the  plaintiff  was  a  merchant  of  respectable  standing,  and  of 
large  business ;  and  that  he  had  many  debts  due  to  him,  which  were 
probably  lost  by  reason  of  his  absence.  The  witness  could  not  tes- 
tily positively  that  the  plaintiff  was  named  in  any  capias  which 
issued,  but  he  believed  that  all  the  obligors  were  named,  and  he 
was  certain  that  the  plaintiff's  name  was  in  the  monition.  It  was  not 
proved  that  any  judgment  had  been  rendered  upon  the  bonds,  which 
were  afterward  paid  to  the  United  States,  by  the  obligors  or  others 
interested;  an  act  of  congress  having  provided  for  their  indemnity 
against  the  British  claim. 

The  chief  justice,  being  of  opinion  that  the  plaintiff  had  not  been 
damnified,  within  the  meaning  of  the  contract  upon  which  the  action 
was  brought,  ordered  a  nonsuit  to  be  entered,  giving  liberty  for  the 
plaintiff  move  the  court  to  set  aside  the  nonsuit  and  grant  a  new 
trial,  if  the  action  could  be  maintained  upon  the  fact's  proved. 

Parker,  C.  J.,  delivered  the  opinion  of  the  court. 

This  case  must  be  considered  an  experiment  to  ascertain  whether, 
under  such  a  state  of  facts,  an  action  can  be  maintained.  Xo  au- 
thority in  favor  of  it  has  been  found  by  the  plaintiff's  counsel,  and 
this  is  of  itself  pretty  decisive  against  the  action.  The  promise  of 
I the  defendant  is,  to  save  the  plaintiff  harmless  from  any  loss  he 
might  sustain  in  consequence  of  signing  a  custom-house  bond  for 
duties  on  goods  imported  by  the  defendant. 

The  common  construction  of  such  a  contract  isAhat  if  the  surety 
is,  obliggjLto  pay  the  bond,  by  suit  or  otherwise,  the  principal  shall" 
repay  him  the  sum  he_has  been  obliged  to  advance,  together  with 
a{TjSUch  reasonable  expenses  as  he  may  have  been  obliged  to  incur, 
and  which  may  be  considered  as  the  necessary  consequence  of  tin 
neglect  of  the  principal  to  discharge  his  own  debt. 

But  extraordinary  expenses,  which  might  have  been  avoided  by 
payment  of  the  money,  or  remote  and  unexpected  consequences,  are 
never  considered  as  coming  within  the  contract.  Thus  if  a  surety, 
by  reason  of  being  obliged  to  pay  money  for  his  principal,  becomes 


710  RIGHT    OF    INDEMNITY 

embarrassed  in  his  business,  and  is  finally  obliged  to  abandon  it, 
it  is  not  expected  that  the  principal  will  be  held  to  indemnify  him 
for  this  consequential  misfortune.  It  is  not  the  natural  and  neces- 
sary effect  of  his  becoming  surety,  but  is  occasioned  by  his  under- 
taking to  do  what  he  was  not  in  a  condition  to  perform. 

So  any  loss  or  expense,  occasioned  by  an  attempt  to  avoid  pay- 
ment of  an  obligation,  can  not  have  been  contemplated  by  the  par- 
ties as  a  subject  of  indemnity,  the  true  meaning  of  the  contract  be- 
ing, that  if  the  surety  pays  voluntarily,  he  shall  be  reimbursed;  if 
he  is  compelled  by  suit  to  pay,  he  shall  also  be  indemnified  for  his 
costs  and  expenses.  Flight,  to  avoid  payment  of  the  debt,  is  an 
accident  wholly  unforeseen,  and  its  consequences  can  not  be  con- 
sidered as  provided  for.  The  principal  had  a  right  to  calculate 
upon  his  surety's  ability  to  pay,  and  did  not  stipulate  to  save  him 
harmless  from  anything  but  the  payment  of  money.  If  the  surety 
were  put  in  prison,  or  if  his  goods  were  sold  at  a  sacrifice,  these 
would  not  be  legal  grounds  of  suit  for  indemnity,  because  they 
might  be  avoided  by  payment,  which  he  must  be  considered  as  stip- 
ulating he  was  able  to  make. 

The  indefinite  nature  and  extent  of  such  damages  as  are  claimed 
in  the  present  action,  is  also  a  sufficient  objection  to  the  character^ 
of  the  action  itself.     If  a  surety,  who  flies  to  avoid  payment,  can 
recover  an  indemnity  for  all  the  consequences  of  his  flight,  such 
as  his  loss  of  business,  loss  of  debts,  expenses  of  removing  and  sup- "' 
porting  his  family,  the  principal  would  have  no  means  of  protect-  ' 
J   ing  himself  against  extravagant  claims ;  so  that  the  danger  would   \ 
rather  lie  in  having  a  surety,  than  in  becoming  one,  which  has  here-   . 
to  fore  been  thought  to  be  attended  with  the  most  hazard.    And  such 
are  the  losses  which  the  present  action  is  brought  to  repair. 

If  the  principle  on  which  the  action  is  founded  is  correct,  there 
would  be  no  measure  between  the  original  debt  and  the  subsequent 
liability  of  the  debtor.  His  surety  for  a  hundred  dollars,  flying 
to  avoid  payment  of  that  sum,  might  incur  expenses  to  the  amount 
of  a  thousand,  all  of  which  he  would  have  as  good  a  right  to  claim 
as  any  part  of  it.  If  the  natural  limit  of  such  a  contract,  which  is 
indemnity  for  the  debt  and  the  necessary  expenses  of  obtaining 
payment,  are  passed,  there  seems  to  be  no  assignable  bounds  to  the 
consequences  of  such  a  contract. 

In  the  case  before  us,  therefore,  if  the  facts  had  all  been  proved 
by  legal  evidence,  we  think  they  would  show  no  damages  for  which 
the  plaintiff  is  entitled  to  recover.  It  certainly  may  be  doubted 
whether  the  British  acquired  any  property  which  could  have  been 
enforced  in  any  of  their  own  courts  of  law,  in  the  bonds  which 
were  taken  possession  of  when  they  captured  Eastport ;  and  it  is 
not  easy  to  see  what  process  would  have  been  resorted  to,  to  en- 
force payment.  They  could  not  be  viewed  as  assignees ;  and  if  they 
proceeded  in  rem  in  their  admiralty  courts,  that  would  not  have  pro- 


NON-LIABILITY   OF    PRINCIPAL 


711 


duced  the  money.  It  does  not  appear  that  the  right  was  ever  in- 
sisted on;  and  the  bonds  have  been  paid  to  the  United  States  by 
the  principals. 

Had  the  plaintiff  been  arrested  on  any  suit,  and,  to  liberate  him- 
self, paid  the  money,  or  had  he  defended  against  the  suit  at  his  own 
expense,  his  claim  would  stand  on  more  plausible  grounds.  At 
present,  it  rests  only  on  his  having  fled  to  avoid  a  suit,  problem-, 
atical  at  least  in  its  issue,  lie  has  never  paid  any  money  on  ac- 
count of  the  bond  which  he  signed,  or  as  trie  necessary  consequence 
of  his  signing  it.     The  nonsuit  must  stand. 

Costs  for  defendant. 


SECTION  4.    NON-LIABILITY  OF  PRINCIPAL 

MARSHALL  v.  HUDSON,  ADMX,  ETC. 
9  Ycrg.  (17  Tom.)  57  (1836). 

Lewis  Earthman,  James  Marshall  and  Zenas  Tate,  on  the  19th 
day  of  November,  1819,  made  and  executed  their  certain  note  or 
writing  obligatory,  sealed  with  their  seals,  to  the  Nashville  Bank, 
for  the  sum  of  two  hundred  and  eighty-four  dollars  and  sixty-two   l 
andji  half  cents,  due  three  years  after  date,  bearing  interest  from 
the~3ateTT^wis  Earthman  was  the  principal  debtor  in  said  note, 
i  and  James  Marshall,  the  plaintiff  in  this  motion,  and  Zenas  Tate 
/  were  securities  to  said  note.     Lewis  Earthman  died  in   1828,  and 
|  administration  upon  his  estate  was,  in  July,   1828,  granted  to  his 
I  widow,  Judith  Earthman,  now  Judith  Hudson,  the  defendant,  and 
John  S.  Cox,  who  at  the  July  term,  1828,  of  the  court  of  pleas  and 
quarter  sessions  of  Davidson  county  court,  duly  qualified  according 
to  law.    The  administrator  and  administratrix  gave  due  notice  of 
| their  appointment  according  to  law.     No  claim,  demand  or  suit,  was 
[exhibited  or  brought  against  the  administrator  and  administratrix 
within  two  years  after  their  qualification,  nor  was  any  request  made 
to  the  Nashville  Bank  by  the  administrator  to  delay  the  bringing  of 
suit  on  said  note.    The  Nashville  Bank  instituted  suit  against  said 
Judith,  who  pleaded  the  Act  of  1789,  c.  23,  limiting  actions  against 
executors  and  administrators,  upon  which  plea  judgment  was  ren- 
dered in  her  favor;  whereupon  the  Nashville  Bank  instituted  suit 
against  said  Marshall  alone,  upon  said  note,  in  the  county  court  of 
Davidson  county,  in  which  suit  Marshall  relied  upon  the  statute  of 
limitations  of  two  years  in  favor  of  the  estate  of  deceased  persons 
(1789,  c.  23),  and  the  judgment  in  favor  of  defendant  as  discharg- 
ing the  estate  of  Lewis  Earthman  the  principal,  and  that  as  security 
he  was  discharged.     The  county  court  decided  that  said  Marshall 


712  RIGHT    OF    INDEMNITY 

was  discharged,  and  upon  appeal  to  the  Supreme  Court  the  judg- 
ment of  the  county  court  was  reversed  and  judgment  rendered 
against  said  Marshall  for  the  full  amount  of  said  note  and  interest, 
amounting  to  ninety-five  dollars  fourteen  and  one-half  cents,  and 
interest  thereon,  and  also  the  costs  of  suit. 

Tate  was  dead,  and  no  suit  was  brought  against  his  representa- 
tives within  two  years  after  his  death.  The  Nashville  Bank  was 
incorporated  by  the  legislature  of  Tennessee,  and  Lewis  Earthman, 
James  Marshall  and  Zenas  Tate  were  citizens  of  Tennessee,  and 
defendant  is  a  citizen  of  Tennessee,  and  surviving  administratrix  of/ 
said  Lewis  Earthman,  decease^;  Said  defendant  now  relies  upon 
the  Act  of  1789,  c.  23,  as  a  bar  to  plaintiff's  right  to  recovery,  be- 
lieving that  no  cause  of  action  exists  against  her,  and  insists  that 
the  payment  of  the  money  by,  or  a  recovery  of  the  judgment  against 
plaintiff,  raises  no  obligation  or  liability  on  behalf  of  the  plaintiff 
against  the  defendant.  The  parties  agreed,  if,  upon  these  facts,  the 
law  is  in  favor  of  the  plaintiff,  judgment  is  to  be  rendered  for  the 
sum  of  ninety-five  dollars  fourteen  and  one-fourth  cents,  and  in- 
terest, the  amount  of  the  judgment  of  the  Nashville  Bank  against 
plaintiff,  and  the  costs  of  that  suit,  and  interest  from  the  rendition 
of  the  judgment;  if  in  favor  of  the  defendant,  judgment  is  to  be 
rendered  for  defendant  for  costs. 

Reese,  J.,  delivered  the  opinion  of  the  court. 

The  Nashville  Bank,  at  the  last  term  of  this  court,_  recovered  a 
judgment  against  the  plaintiff,  who  was  indebted  to  it  as  the  se- 
curity of  the  defendant's  intestate;  although  the  plaintiff  then  urged  I 
that  he  was  not  liable,  because  the  administratrix  had  by  the  judg- 
ment of  the  court,  been  previously  exonerated  on  the  ground  of  the 
operation  of  the  statute  of  limitations  against  executors  and  admin- 
istrators. The  question  in  the  case  is,  whether,  having  since  paid 
the  money  to  the  bank,  he  can  now  recover  it  from  the  defendant? 
And  the  court  is  of  opinion,  that  he  can.  To  maintain  the  correct- 
ness of  this  opinion,  it  is  proper  to  inquire,  first  into  the  origin  of 
the  plaintiff's  cause  of  action,  for  the  purpose  of  _  ascertaining, 
whether  at  the  time  defendant  became  administratrix  he  was  a 
creditor  within  the  meaning  of  the  act  referred  to,  and  secondly, 
into  the  effect  upon  his  rights,  produced  by  the  fact  that  lapse  of 
time  had  barred  the  claim  of  the  bank  against  his  principal. 

As  to  the  first  point,  it  has  been  settled  that  the  cause  of  action, 
although  growing  out  of  the  relation  of  principal  and  surety  cre- 
ated by  the  original  contract,  commences  in  point  of  time  with,  and 
is  founded  upon  the  payment  of  the  debt  by  the  surety,  or  at  the 
earliest,  by  a  statute  of  our  own,  upon  the  rendition  of  a  judgment 
against  him.  It  is  then  he  becomes  a  creditor  of  his  principal.  It 
is  true,  that  previously  to  this,  and  arising  from  the  relation  be- 
tween them,  he  is  not  without  some  protective  and  preventive  rem- 
edies against  his  principal.    He  may  file  a  bill  against  his  principal 


"- 


NON-LIABILITY   OF    PRINCIPAL  713 


and  the  creditor.  He  may  give  the  creditor  notice  to  bring  suit. 
But  it  seems  to  us  that  these  remedies  are  not  founded  upon,  nor 
does  their  existence  create  the  relation  of  creditor  and  debtor,  within 
the  meaning  of  the  Act  of  1789,  c.  23. 

Secondly,   vyjiateffectis_  produced  by  the    fact,   that  time   had 
barred  the  claim  of  the  bank  against  the  defendant?     It  is  urged 
that    the    operation    of    the    statute    for    the    limitations    of    actions 
against  executors  and  administrators,  differs  from  the  general  stat- 
ute of  limitations,  in  this,  that  the  latter  takes  away   the  remedy 
onlyj_  while  the   former   entirely  extinguishes  the   debt.     This   dif- 
■  ference  is  supposed  to  be  established  by  the  cases  referred  to,  which 
determine,  that  though  an  acknowledgment,  or  new  promise  by  an 
administrator  or  other  person  will  take  a  case  out  of  the  general 
statute ;  yet,  such  acknowledgment  or  new  promise  will  not,  in  the 
case  of  the  special  statute,  remove  the  bar  or  revive  the  obligation. 
It  is  inferred  from  this  distinction,  by  the  counsel  of  defendant, 
that  in  the  latter  case  the  debt  is  extinguished  absolutely  and  toA 
the  same  extent  as  if  satisfied  by  payment  or  terminated  by  a  re- 
lease.    But  in  the  cases  themselves  no  such  inference  is  announced. 
These  cases  assert  that  the  distinction  arises  from  the  fact  that  the 
special  statute  is  created,  not  for  the  protection  or  benefit  mainly 
of  the  executor  or  administrator,  but  for  the  protection  and  benefit   • 
of  heirs,  devisees,   or  distributees.     These   special   statutes   intend 
that  there  shall  be  a  determinate  period,  at  which  the  executor, 
who  is  the  trustee,  both  of  the  creditors  and  distributees,  and  a  sort . 
of  stakeholder  between  them,  shall  pass  the  funds,  before  that  time  / 
in  his  possession  for  the  purpose  of  paying  debts,  into  the  hands  of 
the  distributees,  whose  property  they  become.     It  is  true,  that  Jus- 
tice Story,  in  the  case  cited  from  5  Mason  111,  in  referring  to  a 
case  reported  in  15  Mass.  Rep.  6,  uses  the  words  "extinguishment" 
and   "extinction"   in   reference   to   claims   barred   by   these    special 
statutes ;  but,  from  an  examination  of  the  cases  in  5   Mason  and 
15  Mass.  Rep.  6,  it  is  believed  it  will  be  clear,  that  that  learned 
judge  means  total  extinction  of  the  remedy  only.     It  seems  to  us, 
upon  principle  and  authority,  that  perhaps  in  every  instance,  where 
the  law  creates  a  bar,  or  suspends  an  obligation,  it  acts  upon  the 
remedy;  the  party  himself  extinguishes  the  debt.     If,   instead  of 
bringing  this  suit,  the  plaintiff  had  sued  some  administrator  of  the 
intestate  in  Kentucky  or  Alabama,  who  had  qualified  within  the 
last  year ;  will  it  be  contended  that  he  could  not  have  recovered ; 
although  in  each  of  those  states  there  had  been  a  statute,  identical 
in  terms,  with  the  Act  of  1789,  c.  23?     In  some  of  the  states  no 
such  special  statutes  may  exist ;  what  in  such  state  but  the  general 
statute  would  prevent  the  plaintiff  at   any   time   from   recovering «-,      . 
against  an  administrator  of  the  intestate?    This  shows  that  the[deJ2t£ 
is  not  extinguished  by  the  bar  of  the  statute^  and  indeed,  this  point 
was  determined  at  the  last  term  of  the  court,  in  the  case  of  the 


(c 


714  RIGHT    OF    INDEMNITY 

Nashville  Bank  against  the  plaintiff,  Marshall,  and  also  in  the  case 
of  the  Nashville  Bank  against  Campbell,  reported  in  7  Yerg.  If 
more  than  the  remedy  had  been  taken  away;  if  the  debt  had  been 
extinguished,  no  judgment  could  have  been  rendered  against  the 
plaintiff,  in  favor  of  the  bank,  at  the  last  term.  We  are  therefore 
f  opinion,  that  the  plaintiff  take  his  motion. 
Judgment  for  plaintiff. 


Accord :  Sibley  v.  McAllaster,  8  N.  H.  389 ;  Hooks  v.  Branch  Bank,  8  Ala. 
580;  Godfrey  v.  Rice,  59  Maine  308. 

ifn 

yv 

HARLEY,  PLAINTIFF  IX    ERROR,  v.  STAPLE/TON'S 
ADMINISTRATOR,   DEFENDANT   IN   ERROR 

24  Mo.  248  (1857). 

Scott,  J.,  delivered  the  opinion  of  the  court. 

This  was  an  action  by  a  surety  to  recover  from  his  principal^ 
sum  of  money  he  was  compelled  to  pay  as  such  surely:  The  plain- 
tiff signed  a  note  as  surety,  given  to  secure  a  sum  of  money  bet  in 
this  state  on  a  presidential  election.  The  court  instructed  the  jury 
that  if  the  note  paid  by  plaintiff  was  given  to  secure  a  bet  on  the 
presidential  election,  and  the  plaintiff,  at  the  time  he  signed  the  note, 
knew  it  was  given  for  that  purpose,  the  plaintiff  can  not  recover. 
There  was  a  verdict  for  the  defendant. 

In  our  opinion,  the  fact  that  the  surety  (Harley)  was  compelled 
by  the  judgment  of  a  court  in  the  Mexican  dominions  to  pay  the 
debt  does  not  affect  the  merits  of  this  controversy.  The  instruction 
given  by  the  court  assumed,  and  the  court  have  so  found,  that  the 
plaintiff  knowingly  entered  into  an  illegal  contract.  [Whether  he 
paid  the  money  voluntarily,  or  was  compelled  thereto  by  process  of 
law,  it  is  equally  against  the  policy  of  the  law  that  he  should  recover 
(m  this  action.  We  may  presume  that  but  for  the  plaintiff  the  con- 
tract would  never  have  been  made,  nor  the  law  violated.  'This  is 
(an  attempt  to  obtain  an  indemnity  for  knowingly  entering  into  an 
illegal  contract/  It  is  a  rule  that.  |whenever  the  party  seeking  to 
recover  appears'  to  have  been  in  any  respect  contaminated  with,  or 
even  privy  to,  the  illegal  transaction  on-  which  the  claim  is  orig- 
")  inally  bottomed,  his  remedy,  whether  upon  the  primary  considera- 
tion, or  a  security  substituted  for  it,  is  goneA  (Paley  on  Agency 
'  120.)  If  a  surety  to  a  note,  securing  a  sum  bet  on  an  illegal  wager, 
can  recover  against  his  principal  by  paying  the  sum  secured,  then 
the  policy  of  the  law  which  forbids  the  recovery  of  money  lost  at 
unlawful  gaming  would  be  defeated.  Judge  Ryland,  concurring, 
the  judgment  will  be  affirmed. 


NON-LIABILITY    OF    PRINCIPAL  715 

A  surety  paying  a  note  which  he  knows  to  he  void  on  the  grounds  of  usury 
can  not  recover  indemnity.  Roe  v.  Kiser,  62  Ark.  92,  34  S.  W.  534,  54  Am.  St. 
288. 

But  see  Ford  v.  Keith,  1  Mass.  139,  2  Am.  Dec.  4. 


WILLIAM  DAVIS  v.  THE  BOARD  OF  COMMISSIONERS 
OF  STOKES  COUNTY  AND  JOHN  F.  POINDEXTER 

72  N.  Car.  441  (1875). 


. y  Reade,  J.:     In  Poindexter  v.  Davis,  67  N.  Car.  112,  it  was  de- 
cided, that  a  bond  given  for  money  loaned  to  pay  off  a  debt  which 

Jiad  been  contracted  in  aid  of  the  rebellion  was  not  affected  by  the 
illegality  of  the  original  debt.     In  that  case  the  county  court  of 
Stokes  county  had  borrowed  money  of  a  bank  to  equip  soldiers  for 
the  Confederate  service.     That  was  of  course  illegal.     The  county 
court  subsequently  borrowed  money  of  Poindexter  to  pay  off  the 
bank  debt.     And  we  held  that  the  illegal  consideration  of  the  bank 
debt  did  not  affect  the  consideration  of  the  Poindexter  debt.     The 
bounty  court  gave  a  bond  to  Poindexter  for  the  money  borrowed 
>f_him,  and  the  present  plaintiff,   Davis,   was  a   surety  upon  that 
)ond ;  and  the  Poindexter  suit  was  against  him,  and  a   recovery 
Tad  against  him,  and  he  has  paid  a  part  of  the  debt,  and  now 
seeks  to  compel  the  county  of  Stokes  to  reimburse  him  the  amount 
-he  has  paid,  and  to  exonerate  him  from  the  balance  by  the  pay- 
ment  thereof  by  the  county,  upon  the  ground  that   the   county   is 
primarily  liable. 

There  is  no  doubt  of  the  rule,  that  the  principal  is  responsible  // 
to  the  surety  for  any  liability  incurred  by  the  surety  at  the  request 
of  the  principal.  But  that  rule  is  subject  to  exceptions.  A  surety 
for  an  idiot,  infant,  feme  covert,  etc.,  may  be  liable  when  the  prin- 
cipals are  not  liable  either  to  the  obligee  or  to  him.  So  a  surety  for 
a  corporation  in  a  transaction  where  the  corporation  has  not  the 
power  to  contract,  may  be  liable  when  the  corporation  is  not.  And-- 
a  corporation  may  exceed  its  powers  where  there  is  no  moral  turpi- 
tude ;  as  a  board  of  county  commissioners  contracting  a  debt  to 
build  a  church,  a  very  praiseworthy  object ;  but  still,  it  is  beyond 
their  power,  and  they  would  not  be  bound  while  their  surety  would 
be.  Grant  then,  that  the  borrowing  of  money  of  Poindexter  by  the 
county  court  of  Stokes  county  to  pay  the  bank  debt,  was  not  tainted 
with  the  political  turpitude  yet  the  county  court  had  no  power  to 
borrow  the  money,  or  to  give  the  bond.  It  may  be  true  that  there 
were  statutes  of  a  rebel  legislature  which  authorized  it ;  but  such 

,  statutes  were  void.     Butjwhile  the  county  court  had  no  power  to 
give  the  bond,  the  plaintiff  Davis  had  the  power  to  do  it ;  and  there  ' 
being  no  moral  or  political  turpitude  he  is  bound  by  it.     But  when' 

• 


716  RIGHT    OF    INDEMNITY 

he  calls  upon  the  people  of  Stokes  county  to  reimburse  or  indemnify 
him,  they  have  the  right  to  answer,  that  he  was  not  their  surety; 
that  the  county  court  was  not  their  agent  with  power  to  contract 
that  debt,  and  therefore,  they  are  not  liable.  v 

It  may  seem  hard — it  is  hard— that  the  plaintiff  should  have  to 
bear  the  whole  burden  of  what  was  a  common  cause;  and  the 
"pomp  and  circumstance"  of  equipping  soldiers  for  the  field  lost 
much  of  its  glory  when  tarnished  by  the  refusal  to  pay  for  it ;  but 
still  there  is  no  obligation  which  the  courts  of  this  government  can. 
enforce. 

The  principles  governing  this  case  are  discussed  more  at  large 
in  Weith  &  Avents  v.  City  of  Wilmington,  68  N.  Car.  112,  and  in 
a  number  of  cases  in  this  court  within  the  last  few  years  growing 
out  of  transactions  in  aid  of  the  rebellion,  to  be  found  collected 
in  4  Bat.  Digest. 

The  other  branch  of  this  case  is  governed  by  the  same  principles 
as  are  enunciated  in  this  branch. 

There  is  no  error. 

Per  curiam. 

Judgment  affirmed. 


SECTION  5.    NON-LIABILITY  OF  SURETY 
GEORGE.  C.  McCLATCHIE  v.  JEHIEL  V.  DURHAM 

44  Mich.  435,  7  N.  W.  76  (1880). 

Cooley,  J. :  Durham  sued  McClatchie  in  justice's  court,  declar- 
ing generally  on  the  common  counts  in  assumpsit  and  on  the  fol- 
lowing promissory  note : 

"$64.00.  Pentwater,  February  11,  1871. 

I    "For  value  received  I  promise  to  pay  to  E.  Stanhope  or  bearer 
the  sum  of  sixty-four  dollars  on  or  before  the  first  day  of  June  next. 

"George  C.  McClatchie, 
"Jehiel  V.  Durham." 

The  peculiarity  of  the  claim  upon  this  note  is  seen  to  be  _thal_dg.- 
fendant  was  joint  maker  with  plaintiff.  The  suit  was  instituted  I 
on  the  fifth  day  of  July,  1879,  so  that  all  remedy  upon  the  note 
would  then  have  been  barred  for  more  than  two  years  but  for  pay-/ 
merits  which  McClatchie  had  made  upon  it,  and  which  had  satis-, 
fied  more  than  one-half  of  it.  There  was  no  showing  that  Dur-i 
ham  had  anything  to  do  with  these  payments,  and  therefore  the/ 
note  could  not  have  been  enforced  against  him  by  any  holder.       / 


NON-LIABILITY    OF    SURETY  717 

On  the  trial  Durham  established  an  account  against  McClatchie 
to  the  amount  of  four  dollars.  He  also  showed  that  he  signed  the 
note  as  surety  merely  for  McClatchie,  and  that  in  March,  1878, 
after  the  note  had  ceased  to  be  an  obligation  against  himself,  he 
purchased  it,  giving  his  own  note  for  twenty  dollars  in  payment. 
The  defendant  then  produced  and  offered  the  twenty-dollar  note  as 
a  set-off.  The  justice  disallowed  the  claim  of  the  plaintiff  on  the 
first  note,  on  the  ground,  apparently,  that  one  could  not  sue  on  a 
note  of  which  he  was  a  -joint  maker.  He  then  allowed  the  defend- 
ant's set-off,  deducting  therefrom  the  account  of  four  dollars,  and 
rendered  judgment  for  the  balance  in  favor  of  defendant.  The 
plaintiff  removed  the  case  by  certiorari  to  the  circuit  court,  where 
the  judgment  of  the  justice  was  reversed.  The  defendant  then 
brought  the  case  here. 

We  do  not  think  the  question  whether  the  plaintiff  could  sue  on 
theTiote  he  had  signed  for  McClatchie  was  a  vital  one  in  the  case. 
He  certainly  had  a  right  to  take  up  the  note,  and  then  to  sue  Mc-  . 
Clatchie  for  the  amount  paid  as  money  paid  to  his  use.     His  dec-     • 
laration  was  suited  to  the  case,  and  the  fact  that  he  had  declared 
specially  on  the  note  was  immaterial.     It  is  true  that  he  may  have  / 
had  a  good  defense  to  the  note  before  he  purchased  it,  but  he  was 
under  no  obligation  to  plead  the  statute  of  limitations,   and  Mc-  ' 
Clatchie  could  not  complain  of  his  paying  the  note  since  McClatchie  -< 
indisputably  was  still  liable  upon  it.     Plaintiff  therefore  made  out 
a.  clear  right  of   recovery   for  the  two  sums  of   four  dollars  and 
twenty  dollars.     But  the  defendant  by  producing  and  tendering  as 
an  off-set  the  note  of  twenty  dollars  given  in  purchase  of  the  other, 
reduced  the  amount  plaintiff  was  entitled  to  recover  to  four  dollars. 
For  this  he  should  have  had  judgment. 

On  certiorari  the  circuit  court  is  required  to  give  judgment  "as 
the  right  of  the  matter  may  appear,  without  regarding  technical 
omissions,  imperfections,  or  defects  in  the  proceedings  before  the 
justice,  which  did  not  affect  the  merits."  Comp.  L.  5477.  It  should 
therefore  have  reversed  the  judgment  the  justice  had  rendered  in 
favor  of  the  defendant,  and  given  one  for  the  plaintiff  for  the 
amount  he  had  established.  If  Durham  had  brought  the  case  here 
I  we  might  have  given  him  the  proper  judgment,  but  as  he  does  not 
complain  of  the  judgment  in  the  circuit  court,  and  it  was  only  too 
favorable  to  McClatchie,  we  have  only  to  affirm  it. 

Durham  will  recover  costs  of  all  the  courts. 

The  other  justices  concurred. 

Accord :  Stanley  v.  McElrath,  86  Cal.  449,  25  Pac.  16,  26  Pac.  800,  10  L.  R. 
A.  545. 


718  EIGHT   OF    INDEMNITY 


SECTION  6.    BANKRUPTCY  OF  PRINCIPAL 

Section  57  (i)  of  the  Bankruptcy  Act  provides: 
"Whenever  a  creditor,  whose  claim  against  a  bankrupt  estate  is 
secured  by  the  individual  undertaking  of  any  person,  fails  to  prove 
such  claim,  such  person  may  do  so  in  the  creditor's  name,  and  if  he 
discharge  such  undertaking  in  whole  or  in  part  he  shall  be  subro- 
gated to  that  extent  to  the  rights  of  the  creditor." 


— 

LIEBKE  ET  AL.  v.  THOMAS 


116  U.  S.  60S,  29  L.  cd.  744  (1886). 

Mr.  Justice  Miller  delivered  the  opinion  of  the  court. 

The  defendant  in  error  brought  his  action  in  the  circuity  court  for 
the  city  of  St.  Louis  against  the  plaintiff's  in  error,  Liebke  and 
Schrage.  His  petition  alleged  that  on  the  8th  day  of  August,  1877, 
he  executed  and  delivered  to  defendants,  who  were  partners  in 
trade,  his  promissory  note^  payable  to  their  order,  for  the  sum  of 
$500,  in  three  months  after  date.  That  the  defendants  sold  said 
note  to  the  Mullanphy  Bank  of  St.  Louis,  to  which  plaintiff,  on  the 
14th  day  of  November,  paid  the  amount  of  it,  less  a  small  sum  cred- 
ited on  it  as  paid  by  defendants.  The  sum  paid  by  plaintiff  when 
he  took  it  up  from  the  bank  was  $435.  He  alleges  that  the  note 
was  made  and  delivered  to  defendants  for  their  use  and  accommo- 
dation, and  it  was  agreed  that  they  would  take  care  of  and  pay  the 
same  when  it  became  due,  and  hold  plaintiff  harmless  in  regard 
to  it. 

He  further  alleges  that  defendants  have  failed  and  refused  to 
pay  him  any  part  of  said  $435,  and  still  refuse  to  do  so,  wherefore 
he  prays  judgment  for  the  $435,  with  interest  and  costs. 

The  answer  of  defendants  sets  up  an  adjudication  oLbankruplcy 
against  them  October  13,  1877,  a  composition  in  bankruptcy  under 
the  Act  of  Congress,  duly  agreed  upon  at  a  meeting  of  the  cred- 
itors, and  confirmed  by  the  court,  in  which  compliance  with  the 
requirements  of  the  law  as  to  such  composition  is  fully  set  out, 
and  they  plead  this  and  the  payment  of  the  composition  note  in  bar 
of  the  plaintiff's  action. 

A  general  denial  was  made  for  replication,  and  the  case  was 
tried  by  the  court  without  a  jury.  The  circuit  court  gave  judgment 
for  plaintiff,  and,  on  appeal  to  the  St.  Louis  Court  of  Appeals,  this 
judgment  was  affirmed. 

That  court,  in  its  opinion,^  found  in  9  Mo.  App.  424,  bases  its 


BANKRUPTCY    OF    PRINCIPAL  719 


iL^^-J^ 


M 


decision  mainl^_on_the  proposition  that  Thomas,  the  present  plain- 
tiff^ was  entitled  to  notice  of  the  composition  meeting,  andjiad-^io 
such._noti.ee. 

The  facts  in  the  case  are,  that  the  composition  proceedings  took 
place  before  or  about  the  time  of  the  maturity  of  the  note.  The 
note  was  then  the  property  of  the  Mullanphy  Bank.  This  bank  had 
notice  of  these  proceedings,  accepted  the  composition  note  of  the  de- 
fendants for  thirty  per  cent,  of  the  amount  of  the  debt,  according 
to  the  terms  of  the  composition,  and  received  the  money  paid  on 
that  note.  We  think  the  bank  was  the  owner  of  the  note,  the  party  . 
entitled  to  be  dealt  with  in  the  composition  proceedings^-to  take 
(  part  in  them,  and  receive  the  money  paid  under  them.  All  this 
\  it  dtdT  r  *    Ji_J_^ 

Mr.  Thomas. jnu*t4>e4ieJd.ki_ law.  to  have  had  notice  of  the  orig- 
inal bankruptcy  proceedings,  and  that  the  defendants  might  be  dis- 
charged under  those  proceedings.     If  he  preferred  to  take  part  in 
them  rather  than  entrust  the  claim  to  the  bank,  he  could  have  paid  j  ^ 
the  note  and  set  up  his  claim  as  provided  in  5070  of  the  Revised  ' 
Statutes.     He  did  not  do  this,  but  permitted  the  bank  to  represent  . 
that  debt,  which,  as  owner  of  it,  he  had  a  right  to  do,  and  to  re- 
/ceive  the  composition  money.     Mr.  Thomas  has  not  been  hurt  by 
!  this ;  for  there  is  no  reason  to  believe  that  he  would  have  success- 
fully opposed  the  composition  or  received  anything  more  under  it 
than  the  bank  did.     It  can  hardly  be  held  that  Mr.  Thomas  stood 
in  any  better  condition  than  a  person  liable  for  the  bankrupt  as  bad, 
security,  guarantee,  or  otherwise,  who  has  not  paid  the  debt.     5070 
Revised  Statutes.  . 

,  It  is  of  the  essence  of  the  bankrupt  law  thatfwhen  the  bankrupt 
iia^complied  -with  all  the  conditions  of  the  statute  and  surrendered 
his  property  he  should  be  released  from  all  his  debts,  except  those 
of  a  fiduciary  character  or  founded  in  fraud,  of  which  this  US  not 
Ojie-AAnd  the  case  of  Wilmot  v.  Mudge,  103  U.  S.  217.  decides 
{hat  though  no  written  discharge  be  granted,  a  lawful  composition 
and  its  performance  by  the  party  has  the  same  effect.  That  case 
holds  that  17  of  the  Act  of  1874,  which  governs  this  case,  is  a  part 
of  the  bankrupt  law,  and  the  proceedings  under  it  discharge  all 
debts  which  can  be  discharged  under  the  law,  as  to  creditors  "whose 
names  and  addresses,  and  the  amount  of  the  debts  due  to  whom, 
are  shown  in  the  statement  of  the  debtor  produced  at  the  meeting 
at  which  the  resolution  shall  have  been  passed." 

As  evidence  that  it  is  the  holder  of  the  promissory  note  who  is  to 
be  named  in  the  schedule  as  one  having  the  right  to  appear  at  the 
composition  meeting,  the  statute  18  Stat.  182,  17,  says:  "Where 
a  debt  arises  on  a  bill  of  exchange  or  promissory  note,  if  the  debtor 
shall  be  ignorant  of  the  holder  of  such  bill  of  exchange  or  prom- 
issory note,  he  shall  be  required  to  state  the  amount  of  such  bill 
or  note,  the  date  on  which  it  falls  due,  the  name  of  the  acceptor 


720  RIGHT    OF    INDEMNITY 

and  of  the  person  to  whom  it  is  payable,  and  any  other  particulars 
within  his  knowledge  respecting  the  same ;  and  the  insertion  of 
such  particulars  shall  be  deemed  a  sufficient  description  by  the 
debtor  in  respect  to  such  debt." 

As   the   statute   requires   that   the   composition   resolution   to  be\ 
valid  "must  be  passed  by  a  majority  in  number  and  three-fourths  .■ 
in  value  of  the  creditors  of  the  debtor,"  the  above  mode  of  identify-  1/ 
ing  the  creditor  and  the  amount  of  his  debt  shows  that  it  is  not  in-  ^  ., 
dispensable  that  every  person  contingently  interested  in  a  debt  of 
the  bankrupt  should  have  notice  or  take  part  in  the  composition 
proceedings. 

It  is  argued  that  the  liability  of  defendants  to  Thomas  is  not 
,on  the  note,  but  on  their  purpose  to  pay  it  at  maturity.  We  can 
not  take  this  view  of  it.  The  note  is  the  essential  part  of  the  trans- 
action, and  without  its  payment  by  Thomas  he  had  no  cause  of  ac- 
tion against  defendants.  They  were  both  parties  to  the  note  and 
both  liable  on  it  to  the  bank  who  held  it  when  it  became  due.  Which 
was  principal  and  which  surety  could  be  shown  as  between  them- 
selves by  parol,  and  their  liability  to  or  for  each  other  grew  out  of 
that  transaction. 

As  parties  to  it  the  defendants  brought  it  into  bankruptcy  that 
its  holder  might  share  in  their  assets  or  in  the  composition,  and 
that  they  might  then  be  discharged  from  any  obligation  on  ac- 
count of  it. 

The  case  is  strikingly  similar  to  that  of  Hatch  v.  Hatch,  28  Law 
Times  (N.  S.)  506,  Exch.  Ch.,  in  which  a  composition  under  the 
English  bankrupt  law  was  held  to  discharge  the  debt. 

The  judgment  of  the  St.  Louis  Court  of  Appeals  is  reversed,  and 
the  case  remanded  to  that  court  for  further  proceedings  in  accord- 
ance with  this  opinion. 

Accord :  Lipscomb  v.  Grace,  26  Ark.  231,  7  Am.  Rep.  607 ;  Noland  v. 
Wayne,  31  La.  Ann.  401 ;  Crafts  v.  Mott,  4  N.  Y.  604. 


WELCOME  A.  THAYER  v.  JOHN  M.  DANIELS 
110  Mass.  345  (1872). 

The  declaration  alleged  that  the  defendant  as  principal,  and  the 
plaintiff  as  surety,  signed  a  note  for  $500,  dated  September  28, 
1861,  and  payable  on  demand  to  Nathan  George  or  order,  with  in- 
terest ;  that  the  plaintiff  signed  as  surety,  without  consideration,  and 
for  the  accommodation  of  the  defendant ;  that  the  defendant  failed 
to  pay  the  note ;  and  that  the  plaintiff  had  to  pay  to  George  the 
principal  of  the  note  to  take  it  up.     The  answer  denied  the  allega- 


BANKRUPTCY    OF    PRINCIPAL  721 

tions  of  the  declaration,  and  also  set  up  the  statute  of  limitations, 
and  a  discharge  of  the  defendant  in  insolvency.  ~ 

I  AtTthe  trial  in  the  superior  court,  before  Bacon,  J.,  it  appeared 
that  the  plaintiff  executed  the  note  without  any  consideration,  and  . 
for  the  accommodation  of  the  defendant;  that  the  defendant  on 
February  11,  1862,  filed  his  petition  for  the  benefit  of  the  insolvent 
law;  that  a  warrant  was  duly  issued;  that  at  the  third  meeting  of 
the  creditors  George  proved  the  note  against  the  defendant's  estate ; 
that  a  small  dividend  was  then  declared;  that  afterward,  in  August, 
1862,  the  defendant  was  duly  discharged  from  his  debts ;  and  that 
on  May  1,  1865,  the,, plaintiff  paid  to  George  on  the  note  $500, 
which  was  less  than  the  amount  then  due  upon  it,  and  took  it  up. 
The  defendant  asked  the  judge  to  rule  that  the  statute  of  limita- 
tions began  to  run  against  the  plaintiff's  cause  of  action  from  the 
time  the  note  fell  due;  and  that  the  discharge  in  bankruptcy  was 
a  bar  to  the  action;  but  the  judge  refused  so  to  rule,  and  ruled 
that  on  the  foregoing  facts  the  plaintiff  was  entitled  to  recover. 
The  jury  returned  a  verdict  for  the  plaintiff,  and  the  defendant 
alleged  exceptions.  Aj/~& 

Ames,  J. :  There  was  an  implied  promise,  on  the  part  of  the 
(defendant,  as  principal,  to  indemnify  the  surety,  and  to  repay  to 
'him  all  the  money  that  he  might  be  compelled,  in  consequence  of 
his  liability  as  surety,  to  pay  to  the  creditor.  /Until  the  surety  has  7 
,been  compelled  to  make  such  payment,  there  is  no  breach  of  this  Y ^  ^ 
implied  promise.  The  cause  of  action  accrues  then  for  the  first 
time,  and  the  statute  of  limitations  then  begins  to  run.  Of  course 
the  exception  that  the  claim  of  the  plaintiff  is  barred  by  the  stat- 
ute can  not  be  maintained.  Appleton  v.  Bascom,  3  Mete.  169 ; 
Hall  v.  Thayer,  12  Mete.  130. 

At  the  time  when  the  defendant  petitioned  for  the  benefit  of  the 
insolvent  law,  the  plaintiff's  cause  of  action  against  him  had  not 
accrued.  Nothing  was  due  at  that  time  from  the  insolvent  to  the 
plaintiff,  and  whether  anything  would  become  due  depended  upon 
the  contingency  of  his  being  compelled  to  pay,  and  actually  paying, 
the  note,  in  whole  or  in  part.  If  the  plaintiff  had  taken  up  the  note, 
or  made  a  payment  upon  it,  at  any  time  before  the  making  of  the  ; , 
first  dividend,  his  claim  for  the  money  so  paid  would  have  been 
provable  against  the  estate  of  the  insolvent,  under  the  Gen.  Stat., 
e.  118,  25,  and  would  therefore  have  been  barred  by  the  discharge. 
But  it  appears  from  the  report  that1  no  money  was  paid  by  the  plain- 
Lilt  as  surety,  and  no  cause  of  action  accrued  to  him  against  the  in- 
solvent, until  long  after  the  first  and  only  dividend  was  paid  from 
his  estate. 

The  case  of  Mace  v.  Wells,  7  How.  272,  which  is  relied  upon  by 
the  defendant,  arose  under  the  Bankrupt  Act  of   1841,  a   statute 
which   differed   from  our  insolvent  law  in  allowing  sureties   and 
46-De  Witt. 


722  RIGHT   OF    INDEMNITY 

other  parties  under  a  contingent  liability  to  prove  such  contingent 
liabilities  as  claims  upon  the  estate,  and  "when  their  debts  and 
claims  become  absolute,"  to  have  them  allowed. 

The  defendants  also  insist  that  the  debt  itself  was  provable  and 
was  therefore  discharged ;  but  this  is  not  true  as  to  the  contingent 
claim  of  the  surety.     He  had  no  claim  that  was  provable  under)  4 
the  statute,  at  the  date  of  the  discharge.  / 

Two  other  cases  relied  upon  by  the  defendant,  Wood  v.  Dodg- 
son,  2  M.  &  S.  195,  and  Vasandau  v.  Corsbie,  8  Taunt.  550,  were 
decided  under  English  statutes  which  in  express  terms  make  the 
contingent  liability  of  a  surety  a  provable  claim  against  the  bank- 
rupt's estate.  In  the  first  of  these  cases  the  court  say  that  the 
statute  was  intended  to  benefit  the  sureties,  by  allowing  them  to  , 
share  in  the  dividend  before  the  estate  is  all  gone,  and  before  the 
actual  payment  of  their  liabilities.  Neither  of  these  decisions  is 
applicable  to  a  case  under  our  insolvent  laws. 

Exceptions  overruled. 


' 


■ 

CHAPTER  VIII  A 

EQUITABLE    EXONERATION    OF    THE    SURETY 

JOSEPH  J.  NORTON  v.  SAMUEL  REID  AND  JOHN  B. 

SITTON 

11  5".  Car.  593  (1867). 

Before  Johnson,  C. :  This  was  a  bill  quia  timet,  filed  in  the 
court  of  equity  for  Pickens  district,  in  the  year  1866.  The  bill  was 
taken  pro  confesso  against  the  defendant,  Sitton.  The  other  mat- 
ters of  pleading  and  evidence  are  sufficiently  stated  in  the  circuit 
decree,  which  is  as  follows : 

On  the  17th  day  of  July,   1863,  _Sarnuel  Reid,  as  principal,  and 
Joseph  J.  Norton,  as  surety,  executecTTheir  joint  and  several  single-  A 
bill  for"$3.073.05  payable  on  demand  to  John  B.  Sitton  or  bearer, 
"with  interest  compounded  from  the  27th  day  of  July,  1863,"  and 
delivered  the  same  to  the  said  Sitton. 

On  the  21st  day  of  May,  1866,  the  complainant  filed  his  bill 
against  the  principal  to  the  said  single-bill  and  the  payee  of  the 
same,  alleging  that,  when  it  was  executed,  the  defendant,  Samuel 
Reid.  was  in  affluent  circumstances,  but  he  now  jfears  that-SQ-uauch  ^  *- 
of  his'  fortune  was  swept  away  by  the  disastrous  termination  of  the 
late  war  that  he  will  not  be  aide  to  pay  his  debts;  and  that  he  has 
paid  no  part  of  the  single-bill  on  which  he  is  surety,  although  he 
has  often  requested  him  to  pay  the  same,  and  thereby  discharge 
him  from  all  liability  on  the  same. 

The  prayer  of  the  bill  is,  "that  the  said  Samuel  Reid  may  be  re- 
f quired  to  perform,  specifically,  his  contract,  and  be  decreed  to  pay 
to  the  said  John  B.  Sitton  the  said  sum  of  money  in  the  said  single- 
bill  specified,   according  to  the  tenor  and  effect  thereof,"   with  a 
prayer  for  general  relief. 

Samuel  Reid,  in  his  answer,  pleads  to  the  jurisdiction  of  the 
court,  on  the  ground  that  the  complainant  has  a  plain  and  adequate 
remedy  at  law  ;  and  further  answering,  admits  that  his  losses  have 
been  very  heavy,  but  insists  that,  if  he  is  not  unnecessarily  annoyed 
by  over-anxious  creditors,  'he  will  be  able  to  pay  all  debts  in  a  short 
time.\  From  the  evidence  there  is  no  great  danger  of  the  com- 
plainant's having  to  pay  any  portion  of  the  single-bill,  but  his  fears 
on  that  subject  can  not  be  regarded  as  groundless. 

The  practice  in  this  state,  in  similar  cases,  has  been  for  the  surety 
to  pay  the  debt  to  the  payee,  and  then  proceed  against  the  principal 
in  the  law  courts,  and  there  is  no  reason  assigned  in  the  pleadings 

723 


724 


EQUITABLE    EXONERATION 


for  not  pursuing  that  course.  But  Chancellor  Harper,  in  deliver- 
ing the  opinion  of  the  court  in  the  case  of  Pride  v.  Boyce,  Rice  Eq. 
275,  recognizes  the  doctrine  that  it  is  not  necessary  for  the  surety 
first  to  pay  off  the  debt  to  entitle  him  to  a  remedy  against  his  prin- 
cipal ;  and,  further,  "that  a  surety  may,  in  equity,  compel  the  cred- 
itor to  sue,  proffering  an  indemnity  against  costs  and  expenses." 
In  the  case  of  Hayes  v.  Ward  et  al.,  4  Johns.  Ch.  562,  Chancellor 
Kent  remarks:  "It  is  now  considered  a  settled  rule  that/ a  surety 
may  resort  to  chancery  if  he  apprehends  danger  from  the  creditor's 
delay,  and  compels  the  creditor  to  sue  the  principal  debtor,  though 
probably,  be  must  indemnify  the  creditor  ^g^inct  tli^  ™n  sequence 
!  of  risk,  delay  and  expense." 

It  is  stated  in  many  of  the  elementary  books,  in  the  most  general 
language,  that  a  surety  has  the  right  to  come  into  the  court  of  equity 
for  the  purpose  of  compelling  the  creditor  to  sue  the  principal ;  but, 
upon  an  examination  of  the  cases  referred  to  as  authority  on  the 
subject,  it  is  found  that  the  point  was  not  properly  involved  in 
their  decision.  2  Amer.  Lead.  Cas.  1301.  Had  the  bill,  however, 
been  filed  for  the  purpose  of  forcing  the  defendant,  John  B.  Sitton, 
to  proceed  at  law  against  the  principal,  from  the  numerous  dicta 
of  the  most  eminent  judges,  I  would  not  have  felt  myself  at  liberty 
to  refuse  the  relief,  but  I  can  find  no  authority  whatever  in  our 
laws  that  would  justify  me  in  making  the  decree  prayed  for  in  the 
bill,  though  there  are  authorities  supporting  the  practice.  Story's 
Ecp  850;  Brown's  Eq.  581,  and  note  5.  There  are  similar  cases  in 
which  there  are  equities  that  can  be  properly  protected  only  in  this 
court,  but  it  would  be  productive  of  much  litigation  for  the  court 
to  give  decrees  for  the  payment  of  money  where  there  are  no  other 
or  stronger  equities  than  there  are  in  this  case.  It  is  ordered  and 
decreed  that  the  bill  be  dismissed,  with  costs. 

The  opinion  of  the  court  was  delivered  by  Dunkin,  C.  J. : 

In  Antrobus  v.  Davidson,  3  Mer.  577,  Sir  Samuel  Romilly  re- 
marks :  "It  is  nothing  to  say  that  such  a  bill  as  the  present  may 
have  been  seldom  filed,  or  that  no  instance  can  be  produced  of  such 
a  decree  as  is  prayed  by  it,  if  it  can  be  shown  by  analogy  to  decided 
cases,  that  it  is  according  to  principles  upon  which  the  court  usually 
acts,  and  which  are  completely  established." 

Grave  doubts  were  for  a  long  time  entertained  as  to  the  right  of 
the  surety  to  require  the  creditor  to  prosecute  his  demand  against 
the  principal  debtor.  The  difficulties  are  considered  by  Lord  Eldon, 
in  Wright  v.  Simpson,  6  Ves.  714.  It  is  an  interference  with  the 
legal  rights  of  the  creditor  and  may  disturb  his  arrangements.  He 
may  have  looked  more  to  the  surety  than  to  the  principal  debtor. 
"He  may  have  had  so  good  an  opinion  (says  he)  of  Sir  James 
Wright's  personal  responsibility,  that  he  would  take  a  personal  con- 
tract," etc.  (p.  732),  and  again,  "But  the  surety  is  a  guarantor; 
and  it  is  his  business  to  see  whether  the  principal  pays,  and  not 


OF    THE    SURETY 


725 


that  of  the  creditor"  (p.  734).  But  he  admits  that,  m  the  late 
cases,  and  on  the  weight  of  authority,  "provided  there  was  no  risk, 
delay  or  expense,  the  surety  has  a  right  to  call  upon  the  creditor 
to  do  the  most  he  can  for  his  benefit."  Chancellor  Kent,  in  Ward 
v.  Hayes,  4  Johns.  Ch.  132,  traces  this  right  of  the  surety  to  the 
civil  law.  By  the  Justinian  code  "sureties  were  allowed  to  require 
that  before  they  were  sued,  the  principal  debtors  should,  at  their 
expense,  be  prosecuted  to  judgment  and  execution."  But  he  says 
he  can  not  find  any  sufficient  authority  in  the  equity  jurisprudence 
of  England  to  lay  down  any  such  general  rule,  although,  special 
circumstances  would  justify  the  application  of  it.  Air.  Justice  Story 
(2  Eq.  Jur.  849)  comments  on  these  cases  without  adopting  any 
positive  conclusion.  In  Wright  v.  Simpson,  he  says  Lord  Eldon 
admitted  the  right  under  some  circumstances.  "But,  then,  in  such 
case  the  surety  is  compellable  to  deposit  the  money  in  court  for  the 
payment  of  the  creditor."  So  that,  in  fact,  it  is  but  an  indirect  sub- 
rogation to  the  right  of  the  creditor  upon  a  virtual  payment  of  the 
debt   by   such   deposit.  ~j 

It  is  now  well  settled,  that  Jfpon  payment  of  the  debt  by  the 
surely,  lie  may  have  his  action  against  the  principal  without  the  aidj 
of  this  court.'  3  Rich.  199;  Cheves  15.  Such  aid  is  only  necessary 
when  he  seeks  to  be  subrogated  to  the  rights  of  the  creditor 
whose  debt  he  has  satisfied— to  stand  in  his  place,  or  avail  himself 
of  his  securities. 

But  the  surety,  as  is  said  in  Hayes  v.  Ward,  guarantees  the  per- 
formance of  the  contract  by  his  principal — "it  is  his  (business  to  ■ 
see  whether Jhe.  principal  pays."l  From  a  very  early  dayTfre^iighl 
of  the  surety" to  invoke  the  aid  of  this  court  has  been  sanctioned, 
without  challenge,  by  the  masters  in  the  law.  In  1683  Lord  Keeper  '//- 
North  speaks  thus  familiarly  of  the  principle  and  the  reason  of  it: 
"He  compared  the  case  before  him  to  the  case  of  a  counter-bond, 
where,  although  the  surety  is  not  troubled  or  molested  for  the 
debt,  yet,  at  any  time  after  the  money  becomes  payable  on  the 
original  bond,  this  court  will  decree  the  principal  to  discharge  the 
debt;  it  being  unreasonable  that  a  man  should  always  have  such 
a  cloud  hang  over  him."  Runelaugh  v.  Hayes,  1  Vern.  189.  So, 
in  Nesbil  v.  Smith,  2  H.  Bl.  579,  the  principal  debtor  and  the  surety 
had  joined  in  the  same  bond,  but  the  evidence  showed  that  the 
plaintiff  was  merely  surety  for  the  principal  debtor  (Maynard). 
"What  is  the  equity,"  said  Lord  Thurlow,  "in  respect  of  the  surety 
in  the  bond?  That  a  surety,  generally  speaking,  may  come  [into"7 
Ibis-court  and  apply  for  the  purpose  of  compelling  the  principal 
debtor,  for  whom  he  is  surety,  to  pay  in  the  money  and  deliver  him 
from  the  obligation.  But  this  case  differs  from  the  common  case, 
which  forces  the  surety  into  this  court  to  be  so  relieved,"  etc. 

In  Lee  v.  Rook,  Moseley  318,  Sir  Joseph  Jekyll,  Master  of  the 
Rolls,  is  reported  to  say:     "If  I  borrow  money  on  a  mortgage  of 


kjUAS-S 


726  EQUITABLE    EXONERATION 

my  estate  for  another,  I  may  come  into  equity  (as  every  surety  may 
against  his  principal)  to  have  my  estate  disencumbered  by  him." 

The  cause  of  action  in  the  principal  case  is  a  sealed  instrument 
for  the  payment  of  a  sum  certain  on  demand,  and  the  character  of 
the  plaintiff  as  surety  appears  on  the  face  of  the  instrument.     In 
Antrobus  v.  Smith,  3  Mer.  569,  Sir  William  Grant,  Master  of  the 
'  Rolls,  says :    "It  is  true  that  a  surety  may  come  to  compel  the  prin- 
cipal to  relieve  him  of  his  liability  by  paying  off  the  debt."    But  he 
declined  to  apply  the  rule  to  the  case  before  him  (which  was  that 
of  a  bond  of  indemnity),  "because  there  was  no  evidence  that  any 
sum  of  money  in  particular  was,  at  that  time,  actually  due  by  the 
principals."     In  Pride  v.  Boyce,  Rice  Eq.  386,  Chancellor  Harper,  , 
speaking  for  the  Court  of  Appeals,  says :     "It  is  sufficiently  settled 
that  to  entitle  himself  to  a  remedy  against  his  principal,  the  surety 
'  is  not~Dound  first  to  pay  off  the  debt." s  He  refers  to  the  foregoing 
i  opinion  of  Sir  William  Grant  as  stating  accurately  the  principle,  to 
wit,  that  the  surety  may  compel  the  principal  to  relieve  him  by 
paying  off  the  debt.    "The  complainant,"  proceeds  Chancellor  Har- 
per, "comes  for  this  purpose  in  the  present  case,  and  his  right  to  do 
so  is  not  questioned."    Looking  to  these  authorities,  the  principle  is 
thus  announced  by  Mr.  Justice  Story,  section  849:    "Another  case 
of  the  application  of  the  remedial  justice  of  courts  of  equity  by  a 
bill  quia  timet,  is  in  cases  of  sureties  of  debtors  and  others.     If  a\ 
/surety,  after  the  debt  has  become  due,  has  any  apprehension  of  L 
i  loss  or  injury  from  the  delay  of  the  creditor  to  enforce  the  debt  /  ^  , 
~  against  the  principal  debtor,  he  may  file  a  bill  of  this  sort  to  com-l 
i  pel  the  debtor  to  discharge  the  debt  or  other  obligation  for  which/ 
the  surety  is  responsible." 

It  is  not  enough  to  say  that,  in  case  of  danger,  the  creditor  would 
be  sufficiently  vigilant  for  his  own  sake.  He  may  rest  satisfied  with 
the  security,  or  he  may  have  interests  antagonistic  to  those  of  the 
surety,  and  may  not  be  unwilling  to  indulge  the  principal  creditor, 
if  those  interests  can  be  subserved.  But,  whatever  may  be  the  rea- 
sons, the  principle,  as  declared  by  the  court  in  Pride  v.  Boyce,  is 
"sufficiently  settled." 

This  court  is  therefore  of  opinion  that  there  was  error  in  the  de- 
cree of  the  circuit  court  dismissing  the  plaintiff's  bill,  and  the  same 
is  reversed,  and  the  cause  remanded  to  the  circuit  court. 

Decree  reversed. 

Wardlaw  and  Inglis,  A.  JJ.,  concurred. 

Accord:  Ascherson  v.  Tredegar  Dock  Co.,  2  Ch.  401  (1909);  Dobie  v. 
Fidelity  &c.  Co.,  95  Wis.  540,  70  N.  W.  482;  Pavarini  &  Wyne  Co.  v.  Title 
Guar.  &  Surety  Co.,  36  App.  D.  C.  348. 

The  jurisdiction  does  not  rest  upon  the  apprehended  insolvency  of  the 
principal.   Holcombe  v.  Fetter,  70  N.  J.  Eq.  300,  67  Atl.  1078. 

When  the  principal  has  become  insolvent,  the  surety  may  retain  the  moneys 
of  the  principal  or  the  amount  of  his  indebtedness  to  the  principal  as  a  fund 
for  his  indemnity.  Craighead  v.  Swartz,  219  Pa.  149,  67  Atl.  1003;  Scott  v. 
Timberlake,  83  N.  Car.  382. 


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